Leiden Law Blog

Schizophrenia in the EU about International Law

Posted on by Marco Bronckers in Public Law , 15
Schizophrenia in the EU about International Law

Last week, on 13 January 2015, the European Commission finally published the results of its consultation on Investor-State Dispute Settlement (‘ISDS’). This mechanism is part of the negotiations on a comprehensive Transatlantic Trade and Investment Partnership (‘TTIP’) between the EU and the United States. An ISDS mechanism has also been included in similar, comprehensive bilateral trade agreements negotiated between the EU and Canada, and between the EU and Singapore. ISDS may also be included in other bilateral agreements currently being negotiated by the EU, for instance with Japan, and conceivably with China. According to ISDS, private investors (e.g. US companies) can challenge government regulations of the other party to the treaty (e.g., EU or Member State measures), and request financial compensation for those regulations that are found to infringe certain treaty principles.

The Commission’s Consultations

ISDS mechanisms are part of many of the about 1400 bilateral investment agreements previously concluded by individual EU Member States. But now that the EU, in an exercise of its expanded powers under the 2009 Lisbon Treaty, is seeking to include them in new EU-wide agreements, ISDS has become very controversial. Broadly speaking, the criticisms are two-fold. First, in terms of substance, ISDS is seen to limit the policy space of governments: they will be reluctant to introduce regulations that could expose them to challenges and financial claims of foreign private parties. Second, the procedures of ISDS are perceived as deficient: private claims are decided by ad hoc arbiters, in non-transparent ways, without an appellate mechanism, etc.

Indeed, most of the 150,000 replies received by the European Commission during the consultation have been critical of ISDS, and of bilateral trade agreements like TTIP more generally. Member States have pitched in as well, with France and Germany reportedly forming a united front against ISDS. France has been arguing that national courts should play a larger role in adjudicating private claims against government regulations.  This is a theme picked up by the European Commission too. In the coming months it intends to explore further, as one of four areas for possible improvement, the ‘relationship between the national judiciary and ISDS’. 

In the event foreign companies seek protection under the standards set out in an international agreement concluded by the EU, their claims will easily end up before the European Court of Justice (leaving aside the possibility that national courts might be left with some residual power to adjudicate certain claims independently, in the event this new generation of trade agreements would be concluded as ‘mixed agreements’).  When proposing that our own courts are well placed to adjudicate treaty claims brought by foreign parties, or EU nationals for that matter, one should make sure that our courts are willing to hear these claims.

The Aarhus case

On the same date on which the results of the ISDS consultation were published, 13 January 2015, the Grand Chamber of the European Court of Justice issued a notable judgment. The case, Stichting Natuur en Milieu (C-404/12P and 405/12P), concerned a challenge by an NGO of a Commission decision authorizing the Netherlands to postpone the introduction of certain EU clean air requirements. In support of its challenge, the NGO relied on the Aarhus Convention of 1998 on access to information, public participation, and access to justice in environmental matters.  This private challenge met with success in the first instance before the General Court. However, at the request of the EU institutions (Commission, Council and Parliament) that judgment was overturned on appeal. Amongst other considerations, the European Court of Justice held that the NGO, despite an explicit reference to the Aarhus Convention in the EU’s regulation implementing this treaty, was not entitled to invoke the Convention.

Treaty claims before EU Courts

In fact, in recent years the European Court of Justice has shown itself increasingly reluctant to allow private parties to rely on international agreements, such as international trade agreements like the WTO. The Stichting Natuur en Milieu judgment narrows down one of the rare exceptions admitted by the Court for private parties to test measures of the EU against its international treaty commitments. 

Admittedly, in respect of one category of international agreements, that is bilateral trade agreements, the Court did show some willingness in the past to entertain private complaints. One might therefore think that in respect of TTIP and other bilateral agreements, challenges before the European Court could become an alternative to ISDS.  However, it is noteworthy that the EU legislator has stepped in here to try and block the Court.  In decisions signing recent bilateral trade agreements, such as the one with Korea, and Columbia and Peru, the Council added provisions specifying that “The Agreement shall not be construed as conferring rights or imposing obligations which can be directly invoked before Union or Member State courts and tribunals.”

For decades now, not only the EU institutions, but also EU Member States like France and Germany have consistently sought to persuade the European Court of Justice to deny private parties the right to invoke international treaties as a yardstick to test the legality of EU or national measures.  In a key, internationalist judgment of the early 1980s, Kupferberg 104/81, the Court rejected many of these attempts to curtail private claims on principle. More recently though, the Court seems to be coming round to the view that the enforcement of the EU’s obligations under international treaties is best left to foreign governments. The Stichting Natuur en Milieu judgment of last week fits this trend.

Schizophrenia

Against this background, it is really not credible for EU institutions and Member States to argue that our own courts are a better forum than ISDS to adjudicate private claims under international law.  These government agencies have done pretty much everything, over many years, to block or limit such private claims in our courts. However, as I and others have argued, private enforcement in national courts of well-defined international agreements can serve a useful purpose, also for the public at large. One would like to think that the EU will only sign on to binding international commitments if these represent sensible policies, to which also our own institutions can be held. Perhaps the current discussion about alternative private remedies, like ISDS, will stimulate a renewed reflection amongst EU-based governments that, after all, it is in society’s interest to facilitate treaty-based claims in our courts. 

For now, unfortunately, the position of our governments on the enforcement of international law can only be called schizophrenic. As long as this regrettable situation persists, courts in the EU offer no alternative to ISDS.

15 Comments

Marco Bronckers
Posted on September 14, 2015 at 17:44 by Marco Bronckers

Further to the discussions on this blog, I have set out my views on the ISDS-controversy in the EU more fully in an paper that has just been published: Marco Bronckers, Investor-State Dispute Settlement (ISDS) Superior to Litigation Before Domestic Courts? An EU View on Bilateral Trade Agreements, in 18 Journal of International Economic Law 655-677 (No. 3, 2015). The original manuscript can be found here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2660120.

The paper’s two main contentions are:

First, the limited role domestic courts can play in resolving treaty-based claims of foreign investors is not a fact, contrary to what the European Commission maintained in its so-called ‘concept paper’ on ISDS of last May (http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF) .This limited role of domestic courts is largely the result of a surreptitious, and unfortunate policy choice of the EU institutions and Member States. 

Second, even if one assumes that relying on domestic courts could be problematic where treaties are concerned, it makes little sense to allow only foreign investors a better shot at enforcing treaty provisions through some kind of international mechanism like ISDS. The new generation of bilateral agreements cover multiple subjects, from trade to investment, from environment to labor rights. Accordingly, beyond foreign investors other private stakeholders also have an interest in the correct implementation of these agreements. By denying all these stakeholders the right to rely on treaties the governments are putting a firm brake on the benefits they were hoping to generate.  This contradicts the high expectations governments like to raise about the positive impact of the new bilateral trade agreements on economic growth, environmental protection etc.

Marco Bronckers
Posted on April 28, 2015 at 17:17 by Marco Bronckers

You are, unfortunately, very right in pointing out that the EU institutions have been denying direct effect in other bilateral agreements as well – leading to paradoxical, if not outright contradictory results if one compares the greater effect of an older and more superficial agreement like the one with Russia compared to a recent, more close-knit agreement as the one with Ukraine. In a recent and highly interesting article, the author points out for example that the very free movement obligation of the agreement with Russia, which was given direct effect by the European Court in the Simutenkov-case, has actually been strengthened in the agreement with Ukraine. See Aliki Semertzi, ‘The Preclusion of Direct Effect in the Recently Concluded EU Free Trade Agreements’, 51 Common Market Law Review 1125-1158, at 1154 (2014).

Challenging the denial of direct effect stipulated in an international agreement before the European Court does not strike me as very promising. The best way to challenge this creeping development in EU treaty-making would be an open, political discussion with the institutions in the EU that negotiate and conclude these agreements. Such a public debate has been sorely lacking. The current outcry over alternative dispute settlement proceedings like ISDS may lead these institutions to reconsider the value of having regular courts deal with private treaty-based claims.

Interestingly, as noted by Semertzi in the article I just cited (at 1157), what may be driving the EU institutions is a concern that direct effect would highlight the role of the courts and private litigants too much, at the expense notably of the European Parliament whose responsibilities in international trade were reinforced in the Treaty of Lisbon. As I have argued elsewhere, this is an unfortunate and unnecessary line of thinking. Direct effect of international agreements should be distinguished from direct effect of EU law. Contrary to EU law, it should be possible for the EU legislature to correct domestic court interpretations of international agreements which the legislature finds unacceptable. Accepting this distinction would be an important contribution to this debate that the European Court could make. See Bronckers, ‘The Domestic Law Effect of the WTO in the EU – a dialogue with Jacques Bourgeois’, in TRADE AND COMPETITION LAW IN THE EU AND BEYOND, pp. 240-256, Govaere et al. eds., Edward Elgar (2011):  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2014024

Robert Khorolskyy
Posted on April 17, 2015 at 17:59 by Robert Khorolskyy

Thank you for really good blog and comments.
You mentioned recent EU Council decisions on signing bilateral trade agreements with Korea or Columbia and Peru, in which the Council forbade to construe the agreements as conferring rights or imposing obligations which can be directly invoked before Union or Member State courts and tribunals.
The same practice continued recently in relation to Association Agreements with Ukraine, Moldova and Georgia. Moreover, the Council did the same with a multilateral agreement, the Protocol Amending the Agreement on Government Procurement (http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1429281718882&uri=CELEX:32014D0115).

Do you see any chances that the ECJ can recognize such provisions as unconstitutional in some way? Is it possible on substance and procedural reasons?

I would also add, that according to Simutenkov judgement Russian nationals will have opportunity to enforce the Partnership and Cooperation Agreement in the courts, while Ukrainian nationals, having much more ‘integrative’ DCFTA Agreement, will not be allowed to enforce the same provisions in the EU and MS courts.

Marco Bronckers
Posted on April 14, 2015 at 15:50 by Marco Bronckers

The EU institutions and Member States have never been keen on direct effect of international agreements. Yet in such landmark cases as Kupferberg (104/81), or even more recently in a case like Simutenkov (C-265/03), the CJEU rejected these objections to direct effect, at least where FTAs or their bilateral predecessors were concerned. Furthermore, in cases like Fediol (70/87) or Nakajima (C-69/89), which you rightly cite, the CJEU found additional ways of giving some form of domestic law effect to multilateral agreements (such as the WTO) outside of direct effect. What is remarkable about the most recent development is:

(i) the EU institutions are stepping up their efforts to disempower domestic courts, including the CJEU, by persuading their bilateral treaty partners to incorporate provisions in international agreements denying these agreements any effect in litigation before domestic courts
(ii) the CJEU increasingly is accepting objections to direct effect raised by the other EU institutions and at least some of the Member States.

We can speculate as to the thinking behind this recent development: 

- the policy space of the EU will be too much constrained by international law if private stakeholders are allowed to invoke international agreements before domestic courts (but what do we expect from international agreements, also in respect of our treaty partners?)
- the EU should not give direct effect to international agreements if and when its treaty partners do not do so either (but do the good governance principles in modern FTAs, like TTIP, only benefit foreign nationals in the EU?)
- giving direct effect to international agreements will flood domestic courts with spurious claims (is that what has happened so far in cases where international agreements have been granted direct effect?)
- if international law is given direct effect, the ultimate arbiter of the legality of much EU or national regulation would be an international tribunal, rather than the CJEU and/or domestic courts (or is it rather that the EU itself is claiming a more powerful role in international relations and does not want be hamstrung by the CJEU or national courts?)
- …other (?)…

Such speculations are unsatisfactory. Our governmental institutions should be able to explain what the reasons are for their mounting resistance to effective enforcement of international law, and allow a coherent debate amongst stakeholders – especially at a time when governments are investing more and more resources in the negotiation of international agreements on multiple subjects.  Instead, what we are seeing in the pronouncements of our policymakers is schizophrenia: the same institutions and Member States who have been opposing direct or domestic law effect of international agreements in domestic courts, are now opposing ISDS and expressing a preference for courts to deal with private treaty-based claims.  Will the real McCoy please stand up?

Argjend Zhubi
Posted on March 30, 2015 at 11:10 by Argjend Zhubi

Thank you for the post and clarifications professor Bronckers. One thing is still striking to me. If one closely scrutinizes the negotiating mandate and the textual proposals from the Commission’s side there is no role for the EU courts in TTIP. Why there is such a reluctance for the CJEU being involved? Is this agreement to be enforced entirely based on inter-state and ISDS mechanism. With respect to private parties relying on ‘direct effect’ provisions of international agreements, I can say that CJEU would hardly recognize one such thing to private investors, with few exceptions, such as in WTO related cases Fediol and Nakajima.

Marco Bronckers
Posted on March 27, 2015 at 19:12 by Marco Bronckers

Your summary is a good one:  if the relevant TTIP-provisions would be considered to have direct effect (which in the case of an agreement falling within the EU’s exclusive competence would be decided by the CJEU), investors could invoke TTIP before national courts; and national courts could, and in the final instance should, refer any questions of interpretation of TTIP to the CJEU.  This is a big ‘if’ however.  It is remarkable that in CETA (Art. 14.16: http://ec.europa.eu/trade/policy/in-focus/ceta/), as well as in the EU-Singapore agreement (Art. 17.15: http://trade.ec.europa.eu/doclib/press/index.cfm?id=961)), both parties have stipulated that these agreements are not supposed to create private rights of action.  The CJEU has indicated that if such a choice is made in a treaty itself, it will abide by it. See CJEU, C-366/10, Air Transport Association of America, judgment of 21 December 2011, at recital 49: http://curia.europa.eu/juris/document/document.jsf?text=&docid=117193&pageIndex=0&doclang=EN&mode=lst&dir;=&occ=first&part=1&cid=761966.

This denial of ‘direct’ or ‘domestic law’ effect in these two treaties also extends to their investment protection provisions. For investment lawyers this disempowerment of domestic courts is quite remarkable, as BITs have regularly been applied by domestic courts. This was one of the points made by investment law specialists (Drs Barra, Dimopoulos, Kjos, Boisson de Chazournes and de Luca) at a timely conference yesterday in Brussels organized by the European Society of International Law and the Energy Charter Secretariat: http://www.encharter.org/fileadmin/user_upload/Conferences/2015_March_26/ESIL_BeNeLux_Talk.pdf: watch out for papers.

Given the controversy about ISDS, which arose after these disempowerment provisions had already been negotiated in CETA and the EU-Singapore FTA, one wonders whether the signatory governments by now do not have second thoughts:  was excluding access to domestic courts really the sensible thing to do?  Before proceeding to ratification of these treaties, should private access to the courts not be reconsidered? And also, what should be the enforcement scheme of TTIP?

Seb Barkley
Posted on March 18, 2015 at 19:15 by Seb Barkley

If the assumption is that TTIP is an exclusive EU agreement and also that investors can invoke it before CJEU, could it be invoked before national courts (who would then have to consult CJEU)? Or how does the CJEU monopoly play out in practice?

Marco Bronckers
Posted on March 9, 2015 at 11:51 by Marco Bronckers

You characterization of the investment part of the agreement could indeed be an argument to distinguish this part from the rest of a trade and investment agreement concluded by the EU. Though of course, trade agreements also include obligations imposed on governments that are supposed to benefit traders and private stakeholders more broadly.

It will be up to the ECJ to determine whether TTIP is a mixed agreement; and, if so, which part of TTIP falls under the EU’s competence and which part of TTIP might fall under the Member States’ competence.  Last week the European Commission requested the ECJ to opine on this competence question in respect of the FTA which the EU has negotiated with Singapore. That Opinion will also shed light on TTIP.

Marc Roules
Posted on March 3, 2015 at 19:58 by Marc Roules

Thank you for the reply. Since BITs usually impose only obligations on governments and only rights on private investors, could one not argue, to use your words, that “the nature of the overall agreement and the wording of the particular treaty provision lend themselves to invocation by a private party”, meaning that the above restrictive case law examples would not necessarily apply in case of BITs concluded by EU?

And if TTIP is a mixed agreement, how would the division between the jurisdiction of national courts and ECJ be delimited - how would we know which claims relate to areas of mixed competence and which not? And what about purely national measures, which have no relation to EU law, for instance, national public emergency measures that EU law sanctions, how would they fit in the picture? Could such situations end up before ECJ, if the investor invokes BIT protections in response?

Marco Bronckers
Posted on February 25, 2015 at 10:47 by Marco Bronckers

As you indicate, Marc Roules, it is important to articulate which hypothesis we are discussing:

1. No investment rules at all in TTIP. By definition, as you write, then there is no need or room for ISDS.

2. Yet several opponents to ISDS as an enforcement mechanism are in favor of investment rules in TTIP.  For example, the rapporteur of the European Parliament’s International Trade Committee, Mr Bernd Lange, in his draft report of earlier this month on TTIP supports “ambitious” and “comprehensive” rules on investment protection: http://www.europarl.europa.eu/news/en/news-room/content/20150224IPR25160/html/TTIP-talks-EP-committees-discuss-their-recommendations-for-negotiators. But Mr Lange only envisages enforcement of these rules through state-to-state dispute settlement or national courts.  This suggestion that national courts could entertain TTIP-based claims brought by private investors is not credible, as long as EU institutions and Member States continue with their decades-long campaign against private treaty-based complaints in our courts (for details see my blogpost).

3.  There are also those who favor investment rules in in TTIP, but reject ISDS ánd domestic courts as enforcement mechanisms. They would only accept state-to-state complaints about treaty infringements. However, by allowing only governments to challenge treaty violations one sharply limits the impact of these treaty rules. Many problems, especially with administrative measures, and particularly those burdening SMEs, will never be selected for politicized state-to-dispute settlement. When any form of private access is denied, and domestic courts are being excluded, treaties like TTIP will amount to no more than political agreements: interesting for a while, but despite some occasional international rulings and high-level discussions, increasingly irrelevant to most citizens.

Marc Roules
Posted on February 19, 2015 at 22:26 by Marc Roules

Interesting post + comments. I might just add that for most of those who oppose ISDS in TTIP it is not a problem that the BIT could not be invoked by an investor in front of EU or national courts. That investors would have to settle for whatever remedies EU law/national laws provide suffices, and this would of course mean that the whole investment protection chapter is scrapped from TTIP. I haven’t been aware that some governments and EP members would advocate an approach where investors could invoke BIT protection standards before national courts but not before ISDS tribunals. Would be interested in hearing about some sources.

Marco Bronckers
Posted on February 13, 2015 at 10:19 by Marco Bronckers

For an EU agreement including investment protection (like TTIP) to be invokable by American investors in court does not require an act of incorporation or transformation, as the EU is supposedly a ‘monist’ legal order. Even without being told this explicitly in the agreement, the ECJ assumes it has jurisdiction to interpret the EU’s obligations under an agreement to which the EU is a signatory. However, the nature of the overall agreement and the wording of the particular treaty provision should lend themselves to invocation by a private party. This is where the ECJ has become increasingly restrictive, at the insistence of Member States and EU institutions, after its ‘gold standard’ judgment in Kupferberg. See the references in the blogpost, including the hyperlinks.

Tobias Schultz
Posted on February 11, 2015 at 12:29 by Tobias Schultz

Many thanks for the clarifications. I guess my next question would be: what would it take for the ECJ to say that e.g. American investors are entitled to invoke investment protection provisions of a BIT and bring a claim to the ECJ; first, what act of incorporation would be required to make the BIT a part of EU law, and second, what role do the provisions of the BIT play in this respect (do they have to contain explicit references to the jurisdiction of the ECJ, for instance)?

Marco Bronckers
Posted on February 5, 2015 at 12:00 by Marco Bronckers

An international agreement like TTIP will include rules on trade liberalization, investment protection, fair labor standards, environmental protection, etc. that can go beyond the law that is on the books in each of the treaty partners. That is of course the raison d’être of such an international agreement, to go beyond existing domestic legislation. For example, TTIP could not meet the high expectations of being an engine for economic growth, if following its conclusion pretty much everything would stay the same in the United States and the European Union.

Yet, for a variety of reasons, the domestic implementation of a treaty may not always be fully compliant with these international rules. The question then arises whether private parties, who encounter a domestic measure that seems deficient, have access to a forum to challenge what they perceive as a violation of international law. In your example: imagine the Romanian government withdraws an environmental permit, as a result of which a factory must close in which a US investor has recently invested millions. 

As to your first question: Perhaps Romanian domestic law offers grounds for the US investor to file a claim. Conceivably though, the US investor might want to base a claim directly on the US-Romania Bilateral Investment Treaty (‘BIT’), in case the investor perceives this Treaty to offer investment protection that goes beyond Romanian domestic law. Similarly, after TTIP would have been concluded, the US investor might want to base a claim on TTIP (although it has to be added parenthetically that investment protection under TTIP could be more limited than under classic BITs, for instance because public policy exceptions may be supplemented in TTIP’s modernized investment régime). When the US investor wants to base a claim on the BIT, or depending on the outcome of the present debate on TTIP, she could have recourse to ISDS; or the investor could choose to file a claim in Romanian court based on the US-Romania BIT or on TTIP—provided Romanian courts are prepared to admit private treaty-based claims. 

As to your second question: Whether investors could raise claims under TTIP in a national court, and how such a claim should be assessed under TTIP, is to be ultimately determined by the European Court of Justice in the event TTIP would be concluded as an exclusive EU agreement. If, on the other hand, TTIP would be concluded jointly by the EU and the Member States, as a mixed agreement, then some of these interpretative issues might be determined independently by the national courts of the Member States.

Tobias Schultz
Posted on January 29, 2015 at 14:13 by Tobias Schultz

Hmm, couple of questions arise for a non-EU law expert. The article seems to conflate claims under BIT and claims under EU law/national law. Is it not so that if a goverments withdraws, say, an environmental permit, and the company wishes to file a complaint, it can do so under national/EU law or, alternatively, under the BIT. I have trouble understanding why claims by private parties over mistreatment would only take place under a BIT. Neither do I understand why the nature of future EU BITs (mixed agreements or exclusive EU agreements) would have any impact on the ability of investors to raise claims under national/EU law for e.g. alleged discrimination. Am I not understanding something?

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