Putting The Cart Earlier 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 inwards European Business Law (Lund University, June 2012), Magister legum (Lund University, June 2010), BSc inwards Economics & Business Administration (Lund University, June 2009).

Introduction

On eighteen June 2015 the European Commission requested the termination of the intra-EU bilateral investment treaties (BITs) concluded past times Austria, Romania, Slovakia, Netherlands in addition to Sweden. The Commission argued that due to their accession to the EU, Member States accepted that relations betwixt them every bit to matters inside the ambit of conferred powers are, every bit the CJEU said inwards Opinion 2/13 (on European Union accession to the ECHR) “governed past times European Union police to the exclusion, if European Union police so requires, of whatever other law”.

A mutual characteristic of the European BITs in addition to costless merchandise agreements (FTAs) is the presence of a clause on investor-state dispute short town (ISDS), which may involve concerns of inequality before the police inwards the context of a limited access of individuals to the judicial scheme of the EU. Moreover, issues of substantive discrimination are prompted past times a often reaffirmed superior flat of protection of investment nether the BIT compared alongside European Union law.

In 2003, the Commission, the U.S. regime in addition to the acceding states from Central in addition to Eastern Europe – apart from Republic of Hungary in addition to Slovenia – signed a memorandum of understanding, which aimed to eliminate the possibility that American investors would utilisation the BITs inwards company to challenge regulatory or administrative measures adopted past times the Member States alongside the aim of complying alongside European Union law. By doing that the Commission has shown awareness concerning the imminent clash displayed past times cases similar Micula, Eureko or Eastern Sugar.

In Micula v Romania, ICSID Case No. ARB/05/20, the relevant police is the Romania-Sweden BIT ratified inwards 2003, iv years before the accession of Romania to the EU. The respect issued inwards this instance ordered Romania to pay damages of approx. EUR 83 i thou 1000 (RON 367.4 million). The facts of the instance pull the pre-accession province of affairs in addition to the advertisement of investments inwards specific disfavoured regions. Together alongside several other cases – Electrabel, AES, in addition to EDF – Micula reflects a specific type of incompatibility: the clash betwixt the state aid prohibition inwards European Union police in addition to the maintenance of a preferential regime ordered past times the international investment police regime instituted past times the BIT network. (For to a greater extent than on Electrabel, run into the analysis of Matei in addition to Ciurtin here).

The incompatibility alongside European Union police of the financial advantages offered to investors was established commencement past times the Romanaian Competition Council in addition to later past times the Commission in addition to the financial regime was abolished before the accession. This human activity of abolition triggered the dispute before ICSID (the International Centre for the Settlement of Investment Disputes).

The European Commission participated every bit amicus curiae in the ICSID-proceedings, though the arguments brought past times it were non admitted. H5N1 different conceptual understanding of the regulation of legitimate expectations is the principal source of conflict. In European Union law, a state aid mensurate must live notified in addition to approved in addition to alone afterwards the beneficiary may savour the protection derived from the regulation of legitimate expectations.

In the interpretation of the arbitral tribunal, on the other hand, no thing that a state mensurate is implemented inwards breach of European Union law, the investor is entitled to protection. In March 2015 a Commission Decision ordered the recovery of state aid. Romania had already paid a component of the damages awarded past times the arbitral tribunal. The payment constitutes illegal state aid in addition to it must live recovered. By complying alongside the ICSID-award, Romania would neglect to defer to the Commission Decision.

In Eastern Sugar Netherlands v CzechRepublic, SCC Case No. 088/2004, the relevant police was the Agreement on encouragement in addition to reciprocal protection of investments betwixt The Netherlands in addition to the Czech in addition to Slovak Federal Republic, which was ratified inwards 1992. This instance presents a typical instance of incompatibility: the clash betwixt quotas imposed past times European Union on agriculture products in addition to the requirement to keep a preferential regime for the unusual investor.

The arbitral tribunal interpreted the Vienna Convention on the Law of Treaties (VCLT) finding that the patch of report matters treated past times the BIT in addition to the European Union police were dissimilar, the parties did non hateful to terminate the BIT in addition to the BIT in addition to the European Union Treaties were compatible. It awarded damages of EUR 25.4 i thou 1000 for loss of carbohydrate quota attributable to the Czech Third Sugar Decree of March 19, 2003.

The accused argued inter alia that post-accession damages should non live made patch of report to arbitration, since they barbarous inside the exclusive jurisdiction of the CJEU according to Article 344 TFEU. The tribunal noticed that the European Commission did non start infringement proceedings against the Netherlands in addition to the Czechia for failing to terminate their BITs every bit it would conduct hold been expected, if the BIT had been incompatible alongside Article 344 TFEU. The declaration of the accused that the BIT had been implicitly superseded past times the acquis communautaire when the Czechia acceded to the European Union was rejected. It must live retained that the inaction of the Commission in addition to the parties has been interpreted past times the arbitral tribunals every bit a tacit endorsement of compatibility.

In Eureko Netherlands v Slovak Republic, UNCITRAL, PCA Case No. 2008-13, the applicable police is the same every bit inwards Eastern Sugar. Achmea, previously Eureko, is a Dutch insurer in addition to the facts of the instance refer to the liberalisation of the Health Insurance Sector inwards 2004. In belatedly 2006, the newly elected Slovak regime sought to contrary the liberalisation of 2004. Slovakia claimed that the arbitration clause was incompatible alongside European Union law, patch the arbitral tribunal reasoned that no provision of European Union police truly prohibited investor-state arbitration. The arbitral tribunal awarded EUR 22.1 i thou 1000 damages.

The arbitral tribunal found inwards its conclusion of vii Dec 2012 that the BIT was valid in addition to compatible alongside European Union police in addition to the dispute was arbitrable despite the relevance of European Union law. Investors were granted to a greater extent than extensive rights nether the BIT compared alongside European Union police in addition to the arbitral tribunal found that this inequality stayed inwards describe of piece of work alongside law. Hence, the unequal handling of European Union investors seems to live contingent to the exceptional graphic symbol of protection, which a unusual investor is habitually entitled to claim inwards conformity alongside the BIT definitions.

As to the interpretative monopoly of the CJEU, the Frankfurt Court of Appeals (Oberlandesgericht) ruling on the thing of validity of the ISDS-clause inwards the Netherlands-Slovakia BIT found that the exclusivity enshrined past times Article 344 TFEU did non comprehend investor-to-state disputes (see also my comments here). The German linguistic communication courtroom did non refer the interrogation for a preliminary ruling, fifty-fifty if the interpretation of Article 344 TFEU should reasonably conduct hold been submitted to an attempt nether Article 267 TFEU.

Intra-EU BITs

Firstly, the intra-EU BITs came into existence to a greater extent than often than non every bit the resultant of the European Union accessions of 2004, 2007 in addition to 2013, alone ii intra-EU BITs existence concluded betwixt sometime (pre-2004) Member States. Even if the incompatibility manifests itself later – at the flat of litigation – thus the conflict becomes to a greater extent than dramatic after the accession, inwards substance, the incompatibility betwixt the European Union conceptual framework in addition to the BIT philosophy precedes these accessions. Hence, it would live reasonable to inquire the interrogation why the legal status of the intra-EU BITs has non been discussed during the pre-accession menses inwards a to a greater extent than transparent in addition to well-founded manner.

Moreover, well-nigh BITs comprise sunset clauses that learn an undisrupted protection inwards relation to investments already inwards effect. The termination would alone conduct hold forcefulness for the futurity investments, since the investors may rely on the provisions of a BIT for periods of unremarkably 15-20 years from the appointment of termination (see farther my comments on Romania's termination of its BITs). The accession of the post-2004 Member States was non an unprepared precipitous decision, but a procedure alongside a duration of 9-12 years. The incompatibility alongside European Union police has been hanging over the heads of the novel Member States every bit a veritable Sword of Damocles. Thus, the intra-EU BIT disputes should non live depicted every bit anomalies. They could conduct hold been prevented past times a to a greater extent than pre-emptive approach.

External BITs

The Acts of Accession – for all 13 newer Member States – render that “with effect from the appointment of accession, [the state] shall remove from whatever costless merchandise agreements alongside 3rd countries”. According to Article 6(9) in addition to Article 6(10) of the corresponding protocols, if an understanding signed previously cannot live brought inwards describe of piece of work alongside European Union law, the Member State inwards interrogation shall remove from it (see the Protocol on Romanaian in addition to Bulgarian accession). The Acts  concerning the weather condition in addition to arrangements for admission from 2003, 2005, and 2012 speak a clear language. The acceding states had to denounce whatever merchandise understanding they mightiness conduct hold concluded in addition to larn component of the costless merchandise agreements concluded past times the EU. Would it non conduct hold been to a greater extent than appropriate to render a similar obligation alongside regard to the extra-EU BITs?

Having inwards heed the sunset clause, mentioned above, the effect of termination cannot live direct in addition to immediate, so an before handling of the incompatibility number would conduct hold reduced the fourth dimension horizon for potential disputes. It must live reminded that the previous moving ridge of accession, when Sweden, Republic of Finland in addition to Republic of Austria joined the EU, also generated an obligation to align the BITs signed past times these countries alongside the obligations imposed past times Article 351 TFEU in addition to Article 4(3) TEU[11] (see the judgments inwards Commissionv Austria, Commission v Sweden in addition to Commission v Finland). The potential conflict is no novelty.

The full general incompatibility of the BITs alongside Union police – discussed below – poses moreover the interrogation whether Regulation 1219/2012, which concerns the investment treaties betwixt European Union Member States in addition to non-Member States, truly did clarify their legal status. My criticism refers to the fact that instead of giving highest priority to the employment of full general incompatibility, the Commission dealt commencement alongside specific examples of incompatibility. Such concrete examples relate for instance to the exclusive prerogatives of the Council to regulate uppercase movements nether Article 64(2) TFEU or Article 75 TFEU. The Commission’s diplomatic strategy has placed the cart before the Equus caballus i.e. the specific prerogatives of European Union institutions before the protection of the foundation of the European Union law.

Moreover, the incompatibility tin impairment the endeavor of establishing a flat playing patch for the outbound investments. The investors from the Member States having no BITs alongside countries similar Chile, Japan, Korea, Canada or well-nigh recently, the U.S.A. volition non savour the same flat of protection non existence able to escape for certain restrictions imposed past times the relevant FTA. The full general incompatibility entails a high flat of complexity, thus it cannot live surprising that such intricate consequences conduct hold occurred.

The reversed logic of the relation betwixt intra- in addition to extra European Union BITs

Investment protection was the principal tool for economical reconstruction during the post-WWII era, which constituted the dominant component of the Friendship, Commerce in addition to Navigation treaties (see the Vandevelde newspaper inwards the notes). The side past times side large lawsuit was the signing of the GATT inwards 1947, which marked the shift from bilateral to multilateral negotiations in addition to an expanded ambit of talks beyond tariffs. The GATT in addition to the EEC (now-a-days, the EU) – founded inwards 1957 – contributed to deeper economical integration amid Western countries, thus substituting in addition to surpassing the Friendship, Commerce in addition to Navigation treaties afterwards seen every bit less than ideal vehicles for merchandise promotion. The network of BITs emerged every bit agency to ensure investment protection exterior the ambit of the GATT in addition to the EU. The overlapping betwixt BIT protection in addition to European Union police has non been intentional.

As mentioned above, the Commission took the initiatory of signing a MoU alongside the U.S. regime existence aware of the existence of incompatibilities betwixt the European BITs in addition to European Union law. Areas of law, which conduct hold been specifically named inwards the MoU are: the economical freedoms, state aid rules and the obligations imposed past times the European Union treaties inwards relation to 3rd countries.

Article 351 TFEU, which governs the human relationship betwixt European Union police in addition to the pre-existing treaties betwixt Member States in addition to non-EU States, gives appear to the obligation of the Member States to eliminate all incompatibilities alongside European Union police resulting from extra-EU BITs. Then again, the Treaty of Lisbon does non overtly consider the status of the intra-EU BITs. Article 4(3) TEU may live withal useful for this purpose. Some arbitral tribunals interpreted Article 351 TFEU every bit inferring paradoxically a to a greater extent than lenient regime for the intra-EU BITs.

By not opening before infringement proceedings or not explicitly placing the intra-EU network of BITs exterior the law, the European Union institutions did – according to the arbitral tribunals – tacitly endorse the intact validity of these BITs in addition to the jurisdiction of the arbitral tribunals for that matter. The contrast betwixt alter- in addition to outer legality is of the essence, since the ISDS exists every bit an choice to, non a substitute for, the domestic judicial system.

General incompatibility alongside European Union law

From a purely legal perspective the province of affairs of double standards roofing areas of police defining the real foundation of the Union – the economical freedoms in addition to the transjudicial dialogue based on sincere cooperation in addition to mutual trust – are direct threats to its political integrity in addition to the autonomy of the European Union legal order. The conduct chances of jeopardising the autonomy of the Union legal company is the effect of an extant parallel international company that does non conduct hold to convey its rulings inwards describe of piece of work alongside the interpretation of European Union police adopted past times the CJEU.

It must live mentioned every bit good that unremarkably the conceptual conflict betwixt international police in addition to European Union police relates to the contradiction betwixt reciprocity in addition to the European Union federal principles of autonomy, conferral in addition to subsidiarity. However, the legal regime represented past times the European BITs has been characterised past times asymmetry existence designed to protect the interests of investors from the uppercase exporting countries against the whims of the unstable governments inwards the uppercase importing countries. This is why, at that spot are non many BITs signed betwixt pre-2004 fellow member states in addition to the focus of the Commission has been initially assault the BITs signed past times an acceding state alongside 3rd countries.

The transition from the pure intergovernmental laid of rules to a to a greater extent than federal agenda engendered legal discrepancies, negative interlegality in addition to pregnant costs for the parties direct involved inwards these disputes. However, on the state-to-state level, it is obvious that the European Union accession of the uppercase importing countries to the CEE provided a to a greater extent than substantial in addition to comprehensive safeguard for the uppercase exporting countries inwards the North-western Europe than a BIT would e'er live prone to afford. It is hard to back upwards the declaration of practical significance of BITs inwards the constitutional framework of the European Union past times using legal terms.

The alone persuasive declaration is the protection of legal certainty of the investment regime inside the EU, though the strength of it has alone been tested past times the arbitral tribunals against the VCLT (Articles 59 in addition to xxx of that Convention). The conflict of laws assessment has constantly reached the conclusion that each BIT has non been displaced past times the European Union treaties. The Vienna Convention does neither bind the Union nor all its Member States. It has relevance alone every bit a reflection of the rules of customary international law, which are binding upon the Union institutions in addition to cast component of the Union legal company (see CJEU judgments inwards Racke, El-Yassini in addition to Jany). From this indicate frontwards the thing becomes i of harmonious interpretation, a method which requires a deferential mental attitude towards the legal identity of the challenger. The ECtHR for instance follows the jurisprudence of the CJEU in addition to the opposite is true, fifty-fifty if no binding understanding has been signed in addition to no hierarchic construction has been crystallised betwixt them.

In its Opinion 2/13, the CJEU did non handle to assign the powerfulness to translate European Union police provisions to the lastly adjudicator inwards matters of human rights – the ECtHR – affirming i time over again that the interpretation of European Union police must remain the exclusive prerogative of the Union supranational judicial authorisation (see the discussions on this spider web log past times Peers in addition to Barnard). So, how could someone hold off the CJEU to handle alongside a transfer of powers to a non-judicial in addition to temporarily constituted entity, which is ineligible to refer to the CJEU for a preliminary ruling nether European Union law? (see the judgments inwards Pretore di Salo, Pardini in addition to Corbiau) How could it live possible to create that without contradicting itself inwards the assessment of a key matter?

As van Harten says: “The powers shifted to arbitrators are amid the highest that whatever adjudicator tin exercise. They involve the lastly determination of the legal boundaries of sovereign authority, every bit exercised past times whatever legislative, executive, or judicial body, based on wide standards of unusual investor protection. They tin atomic number 82 to the assignment of potentially vast amounts of populace funds to private actors, unremarkably large companies. They are backed past times an international enforcement scheme that is to a greater extent than powerful than that of domestic or international courts. They are patch of report to real limited judicial review or no judicial review at all, depending on the arbitration rules nether which the unusual investor chooses to convey its claim”.

The possibility to obtain damages for state or supra-state non-contractual liability inside the European Union is narrowly defined, thus inwards a similar province of affairs of (for example) expropriation without compensation, an investor nether a BIT understanding would savour a higher grade of protection existence able to obtain substantial damages every bit underlined past times van Harten above. So should the same enhanced flat of protection live granted to all investors no thing if their province of affairs is covered past times a BIT or not? In Eureko the claimant declared explicitly that it preferred to utilisation the arbitration solution offered past times the BIT instead of the judicial path offered past times the European Union scheme in addition to the arbitral tribunal recognised that a higher flat of protection is guaranteed nether BIT-regime.

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

While the Council believes that the novel legal framework should comprise the pre-existing investor guarantees inwards BITs, in addition to the Commission also supports ISDS, the EP has moved towards opposing it inwards its acquaint form, asserting in 2013 that futurity European Union investment agreements should include an ISDS-clause, alone if it were justifiable inwards the lite of a case-by-case assessment. At the well-nigh recent EP consultations, Bernd Lange – rapporteur on TTIP for the EP’s international merchandise commission (INTA) – affirmed exultantly: “We conduct hold placed the extrajudicial arbitration inwards the dustbin of history. It is clear that private tribunals conduct hold no futurity inwards merchandise agreements. And nosotros volition operate on a novel system, which corresponds to a populace court”.

Kleinheisterkamp in addition to Poulsen proposed inwards their plough 3 distinct patterns for investor protection inwards the T-TIP. The first selection – no greater rights – corresponds to the American merchandise policy adopted past times the 2012 U.S.A. Model BIT.

The second pattern – the Australian ISDS model – matches the proposal of well-nigh Committees of the European Parliament existence characterised past times default reliance on domestic courts supplemented past times state-to-state dispute short town in addition to institutionalised consultations concerning the domestic regimes of investor protection.

The third pattern would live inwards melody alongside the European Union constitutional construction every bit to the selection to let primarily the domestic courts to create upwards one's heed on the legality of populace acts, so it reflects the American philosophy alongside regard to binding state interpretations in addition to filter of frivolous in addition to patch unmeritorious claims (see Tietje in addition to Baetens, inwards the notes; compare to the Bipartisan Congressional Trade Priorities in addition to Accountability Act 2015, p 14). The possibility to review the legality of state measures at the flat 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 in addition to consistency must move manus inwards manus in addition to mayhap the Europeans could extract or so relevant cognition from the developments accumulated past times the the States during the past times 3 centuries. H5N1 comparative historical report could live a beneficial groundwork for achieving an improved insight into the thing of merchandise agreements authority. As the EU-BITs array of contradictions perfectly shows, despite its apparent political cleverness, the strategic displace of putting the cart before the Equus caballus would live an unfortunate conclusion every bit 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 in addition to Freya Baetens, ‘The Impact of Investor-State-Dispute Settlement (ISDS) inwards the Transatlantic Trade in addition to Investment Partnership’, 26 June 2014, p. 127. Compare alongside the Bipartisan Congressional Trade Priorities in addition to Accountability Act of 2015 (TPA-2015), p. 14.

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