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.
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.