Implications of the CJEU Achmea decision for CETA’s
Investment Court System
International and European Law: International Trade and Investment Law
2017/2018
Master thesis
Author:
Peter Pukan
Supervisor:
Dr. Hege Elisabeth Kjos
Date of submission: 26 July 2018
I hereby declare in lieu of an oath that I have completed the present master thesis entitled Implica-tions of the CJEU Achmea decision for CETA’s Investment Court System independently and with-out illegitimate assistance from third parties. I have used no other than the sources specified in bib-liography.
The impact reach of the consequences of the CJEU’s landmark decision in Achmea case is currently subject to widespread debate in which different scenarios are being presented. Although the case concerned an investor-state dispute settlement (‘ISDS’) arbitration clause contained in an intra-EU bilateral investment treaty (‘BIT’), the general nature of the Court’s reasoning does not exclude its application also beyond intra-EU context. This thesis contributes to the ongoing debate by address-ing the research question, whether the Achmea reasons for incompatibility may also apply to the Investment Court System (‘ICS’) of the EU-Canada Comprehensive Economic and Trade Agree-ment (‘CETA’). Through the application of a three-step test, as articulated by the CJEU in Achmea, to the ICS, the author compares the nature of the ICS to that of the intra-EU arbitral tribunal in Achmea. Does CETA provide for sufficient safeguards to avoid threatening the exclusive compe-tence of the CJEU to provide final binding interpretation of EU law? Will the Court accept the possibility that the ICS may consider EU law as a ‘matter of fact’, or will it become the subject of yet another adverse opinion on international dispute settlement body? Answers to these questions are to be answered by the CJEU in its anticipated Opinion 1/17, in which it will decide on the fate of this revolutionary ISDS mechanism. Nevertheless, based on our analysis, it is already safe to expect the conclusions from the second and third step of Achmea test to equally apply to the Invest-ment Court System. Therefore, should the CJEU apply the same three-step test, it would have to conclude that the ICS is not part of the EU legal system, and its awards are not subject to sufficient review performed by MS courts. Nevertheless, the answer to the first, triggering question of the test, namely whether the ICS does interpret EU law, hangs on specific guarantees provided in CETA. The Court will ultimately have to decide, whether it considers them adequate for the protection of the exclusive competence of the CJEU to provide final interpretation of EU law and the preservation of the autonomy of the EU legal order.
Table of contents
List of Abbreviations 4
Introduction 6
1 ISDS as a form of dispute settlement mechanism 8
1.1 ISDS from perspective of international law... 9
1.2 ISDS from perspective of EU law ... 10
1.2.1 Main characteristics of the EU legal system... 12
1.2.2 The CJEU’s jurisprudence on International Dispute Settlement ... 15
1.2.3 International Investment Agreements in the EU context ... 20
2 The CJEU Achmea decision 23 2.1 Background summary ... 23
2.2 Incompatibility with EU law ... 24
2.2.1 Interpretation and application of EU law by the BIT Tribunal... 25
2.2.2 The BIT Tribunal as a ‘court or a tribunal’ of a Member State ... 26
2.2.3 The BIT Tribunal’s awards and judicial review ... 27
2.2.4 Immediate consequences ... 29
3 Implications for CETA after Achmea 30 3.1 The Comprehensive Economic and Trade Agreement ... 30
3.2 The Investment Court System ... 31
3.3 Applying the Achmea three-step test on the ICS ... 33
3.3.1 Interpretation and application of EU law by the ICS ... 33
3.3.2 The ICS as a ‘court or a tribunal’ of a Member State ... 36
3.3.3 The ICS’ awards and judicial review ... 37
3.3.4 Preserving the autonomy of EU law? ... 39
Conclusion 41
List of Abbreviations
AG - Advocate General
BIT - Bilateral Investment Treaty
BIT Tribunal - An arbitral tribunal constituted on the basis of Article 8 NL-SK BIT CCP - Common commercial policy
CETA - Comprehensive Economic and Trade Agreement Commission - European Commission
ECAA - European Common Aviation Area
ECHR - European Convention for the Protection of Human Rights and Fundamental Freedoms
ECT - Energy Charter Treaty
ECtHR - European Court of Human Rights EEA - European Economic Area
EFTA - European Free Trade Association EU - European Union
EU Treaties - Treaty on the European Union, Treaty on the Functioning of the European Union
EUSFTA – The European Union – Singapore free trade agreement FDI - Foreign direct investment
FTA - Free trade agreement ICS - Investment Court System
ICSID - International Centre for Settlement of Investment Disputes IDS - International dispute settlement
IIA - International investment agreement ISDS - Investor-State Dispute Settlement
MS - The Member States of the European Union
NL-SK BIT - Netherlands - Slovakia bilateral investment treaty PC - The Patents Court
TEU - Treaty on the European Union
TFEU - Treaty on the Functioning of the European Union The Court, CJEU - The Court of Justice of the European Union
TTIP - Transatlantic Trade and Investment Partnership UAR - UNCITRAL Arbitration Rules
UNCLOS - United Nations Convention on the Law of the Sea VCLT - Vienna Convention on the Law of Treaties
Introduction
Starting in the late 1950’s, the international legal community has been witnessing significant devel-opment in two seemingly unrelated areas – international investment law and European Union law. In 1958, the Treaty of Rome establishing the European Economic Community and the European Atomic Energy Community came into force and laid the foundations of today’s European Union.1
Only one year later, the first treaty on the promotion and protection of investments between Pakistan and Germany was signed.2 Since the 1960s, these bilateral investment treaties (‘BITs’) have
gener-ally provided for investor-state arbitration as a form of dispute settlement; and presently the number of international investment agreements in force is 2672.3 Against this background, the European
Union (‘EU’), with an ambition of becoming a key player on the international scene, has gone through considerable expansion in both its competences and the number of Member States. After the adoption of the Treaty of Lisbon in 2009, which inter alia placed foreign direct investment under EU exclusive competences, the Union has been forced to interact with an already existing frame-work of sources and principles of international investment law.4 This has naturally led to the
neces-sity of shaping the Union’s position towards different types of IIAs and their investment arbitration mechanism, particularly in regard to their compatibility with EU law.
The topic of this thesis is the Union’s approach to investor-state dispute settlement (‘ISDS’) in the context of the recently issued Achmea decision of the Court of Justice of the European Union (‘CJEU’),5 in which it was called on to resolve the preliminary question about the compatibility of
the Netherlands - Slovakia BIT with EU law.6 In the decision from 6 March 2018, the Court
con-cluded that the arbitration clause providing for ISDS violates the autonomy principle and is thus incompatible with EU law. Seeing that the decision deals only with an intra-EU BIT, the academic debate that followed has focused primarily on Achmea‘s consequences for intra-EU BITs, Energy Charter Treaty or ongoing arbitration proceedings.7 To contribute to the academic debate from a
different perspective, this thesis addresses the research question whether the reasons for incompati-bility articulated by the CJEU may also apply to the Comprehensive Economic and Trade Agree-ment (‘CETA’) and its proposed InvestAgree-ment Court System (‘ICS’).8 This issue is highly relevant, as
the EU is currently involved in a number of negotiations of IIAs with third states, which are to
1 Treaty establishing the European Economic Community (1957).
2 Treaty between the Federal Republic of Germany and Pakistan for the Promotion and Protection of Investments (signed on 25 November 1959).
3 In 2017 the number of effective terminations (22) outpaced the number of newly concluded IIAs (18). See UNCTAD, World Investment Report 2018, p. xi.
4 See para 157 (2) Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the Euro-pean Community (2007).
5 CJEU, Judgement, C-284/16, Slovak Republic v Achmea B.V (6 March 2018).
6 Former Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Nether-lands and the Czech and Slovak Federal Republic (1992).
7 See for instance S. Hindelang, The Limited Immediate Effects of CJEU's Achmea Judgement (Verfassungsblog, 9 March 2018); X. Taton, G. Croisant, Intra-EU Investment Arbitration Post-Achmea: A Look at the Additional Remedies Offered by the ECHR and EU Law, (Investment Arbitration Blog, 19 May 2018).
8 The Comprehensive Economic and Trade Agreement (signed 30 October 2016, provisionally applied 21 September 2017).
contain mechanisms similar to the ICS. In addition, the anticipated opinion of the CJEU on the compatibility of CETA with EU law is to be delivered next year.9 Hence, the academic discussion
surrounding the question of compatibility of ISDS and ICS with EU law is currently more vigorous and productive than ever before.
This thesis consists of three main sections. The first section briefly clarifies the key features of the investment arbitration system from both an international and EU law perspective. First, general characteristics of international investment law are described, particularly its grounding in a vast number of IIAs that often provide for ISDS. Second, by reference to leading case law, specific char-acteristics of EU law in regard international dispute settlement bodies such as the autonomy of EU legal order and the EU judicial structure are explained. Finally, a general position of selected cate-gories of IIAs providing for ISDS in the context of EU law is provided.
The second section is devoted to an analysis of the CJEU’s ruling in Achmea.10 After a brief
summary of the factual and procedural background of the case, a detailed analysis of the reasons underlying the Court’s decision is performed in accordance with the three-step analysis which led to the finding of incompatibility of the Netherlands-Slovakia BIT with EU law.
Finally, in the third section, the Achmea’s three-step test is applied to CETA’s Investment Court System. CETA is a mixed free trade agreement which is currently provisionally applicable until ratified by all Member States.11 Its investment chapter, however, is not among the provisionally
applicable parts of the agreement. Hence, the future of the Investment Court System is yet uncertain not only because the agreement is subject to ratification at national parliaments’ level, but also be-cause of the pending request for an opinion on its compatibility with EU law.12 This section aims to
provide the answer to the research question whether the Achmea reasons of incompatibility of an intra-EU BIT with EU law do apply to the proposed functioning of the ICS under CETA.
9 Belgian Ministry of Foreign Affairs, Minister Reynders submits request for opinion on CETA (6 September 2017). 10 CJEU, Judgement, C-284/16, Slovak Republic v Achmea B.V (6 March 2018).
11 European Commission, EU-Canada trade agreement enters into force (20 September 2017) 12 Belgian Ministry of Foreign Affairs supra note 9.
1 ISDS as a form of dispute settlement mechanism
International investment arbitration as a phenomenon has risen hand in hand with an increasing practice of states engaging in negotiations of international agreements intended to provide protection for foreign investors in their host states.13 Although frequently criticized by scholars, governments
and in public,14 it has maintained a firm position as a method of dispute settlement between foreign
investors and host states. While providing many advantages for investors, namely the possibility of obtaining final binding and enforceable awards, independent ‘depoliticized’ tribunals composed of experts in the field or quite flexible proceedings, host states may also benefit from agreeing to ISDS. First, by providing consent to investment arbitration, they improve their investment climate to attract foreign investors and investments. Second, by consenting to international arbitration the host state shields itself against other inter-state processes such as diplomatic protection.15 These are the main
reasons why ISDS has become a stable component of the functioning of international investment relations within contemporary international investment law.
Prior to entering into force of the Treaty of Lisbon, the competence of negotiation and conclu-sion of IIAs was beyond the scope of EU powers. Accordingly, most EU Member States maintained their own networks of IIAs without any involvement of the EU.16 Since 2009, however, the Treaty
of Lisbon has broadened the EU competences within the Common Commercial Policy (‘CCP’) via the insertion of ‘foreign direct investment’ (‘FDI’) into existing framework.17 This has sparked a
debate about the future shape of the EU’s foreign investment policy including the Union’s position towards ISDS.18 Since then, the Union itself has engaged in negotiations of several free trade
agree-ments (‘FTAs’) containing investment protection provisions with third states. While this activity reflects the Union’s position in its external relations, in the intra-EU context, the Union is in the middle of the process of attentively forming its approach towards the internal compatibility of Mem-ber States’ (‘MS’) BITs with EU law.
The following sub-sections describe the foundational elements of ISDS mechanism from the perspective of international law (Section 1.1), with a particular emphasis on IIAs providing for ISDS. Subsequently, to unveil the EU perspective, the position of FDI within Union’s competences as well as the essential principles governing its relationship with international dispute settlement bodies (‘IDS’) are described. To provide better understanding of the contemporary approach of EU
13 J. W. Salacuse, The Law of Investment Treaties (2nd ed, Oxford: Oxford University Press 2015), p.1.
14 Most frequently voiced reasons for criticism: the very legitimacy of a system that entrusts private persons the power to judge the legality of regulations and measures taken in the public interests by lawful governments; the costs of the system and damage awards against state placing a burden on public finances; lack of transparency; inconsistency of the decisions; absence of an appellate mechanism; impartiality and independency of arbitrators. J. W. Salacuse (2015), p. 434.
15 R. Dolzer, C. Schreuer, Principles of international investment law (2nd ed. Oxford: Oxford University Press 2014), p. 236.
16 A. Dimopoulos, M. Sattorova, The Present and Future of EU International Investment Treaties (Legal Issues of Economic Integration 39(2), 2012) pp. 153–155.
17 Arts. 3(1)(e), 207 TFEU
18 G. Uwera, Investor-State Dispute Settlement (ISDS) in Future EU Investment-Related Agreements: Is the Auton-omy of the EU Legal Order an Obstacle? (The Law & Practice of International Courts and Tribunals 15(1), 2016), p. 103. See also A. Dimopoulos, M. Sattorova (2012), pp. 153–155.
law towards international agreements providing for IDS, a summary of the leading case-law of the CJEU in this area is included (Section 1.2.3).
1.1 ISDS from perspective of international law
After the first IIA was signed in 1959, the next half of the century witnessed a widespread treatifi-cation of international investment law.19 Today, foreign investors rely primarily on the standards of
protection contained in IIAs rather than on customary international law, the content of which is insufficient for the present-day purposes of foreign investment protection. Hence, treaties have be-come the elemental source of international law in the area of foreign investment.20 Shortly after the
adoption of the ICSID Convention21 in 1966, which provided for specialized forum for settling
dis-putes, IIAs began to provide for the settlement of disputes by means of arbitration.22,23 Under the
term international investment agreement we understand instruments of international law by which states:
1. commit to accord certain standard of treatment to ‘investors’ and ‘investments’ (defined by the particular IIA) made by nationals of those other states parties, and
2. agree to some mechanism for enforcement of those commitments 24
The first part of an IIA thus consists of substantive standards of protection such as a guarantee of fair and equitable treatment, guarantee against arbitrary and discriminatory treatment or a guarantee in case of expropriation. All these standards aim to secure and promote the position of foreign in-vestors vis-à-vis potential measures of host states.
Moreover, in order to establish a stable, rule-based system for international investment protec-tion, the second part of an IIA usually provides means to resolve disputes concerning the interpre-tation and/or application of a particular treaty.25 These may have various forms ranging from
con-sultations and negotiations, to the possibility of arbitration as a binding form of settlement. The vast majority of IIAs contain two provisions on arbitration. One provides for arbitration between an in-vestor and a host state (ISDS), and the other for arbitration between the states parties to the treaty (state-state arbitration).26 In general practice, ISDS is much more frequent than state-to-state
arbi-tration, also for the purposes of this thesis, only ISDS as a means of dispute settlement is further discussed.
Because arbitration is a dispute settlement method based on an agreement of the parties, most IIAs also provide express consent of the two states parties to arbitration with investors holding the nationality of the other state. Consequently, the authority and jurisdiction of an arbitral tribunal is
19 J. W. Salacuse, The Treatification of International Investment Law (Law & Bus. Rev. Am., 13, 155, 2007), p. 157. 20 J. W. Salacuse (2015), supra note 13, p. 1.
21 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Conven-tion) entered into force on 14 October 1966, 30 days after ratification by the first 20 states.
22 The first BIT to include an ICSID clause was the Netherlands–Indonesia ‘agreement on economic cooperation’ signed in 1968, just two years after the ICSID Convention entered into force.
23 J. W. Salacuse (2015), supra note 13, p. 422. 24 Ibid. p. 1.
25 Ibid. p. 399
also grounded in the specific IIA. Apart from IIAs as the most commonly used instruments, a mul-tilateral treaty, investment contract between a state and an investor or host state’s national legislation may also provide for consent to arbitrate.27 In contemporary practice, the category of IIAs is
com-posed of three main instruments of international law:28
1. bilateral investment treaties (‘BITs’);29
2. bilateral economic agreements with investment provisions;30 and
3. other investment-related agreements involving more than two states.31
For the purpose of this thesis, only the first two categories will be further examined, as the research question deals with the Netherlands – Slovakia BIT (type 1) from Achmea decision, and, CETA, which is an EU free trade agreement with investment provisions (type 2). Other investment-related agreements involving more than two states (such as NAFTA) (type 3) do not fall within the scope of this thesis.
The mechanism called ISDS may thus be defined as an international dispute settlement method based on an IIA whereby the disputants – a private national of one state party and other state party, agree to submit their dispute to a third party (a sole arbitrator or an investment tribunal) for a decision according to agreed norms and procedures and to carry out the decision (arbitral award) of that third party.32 In addition to its traditional role as a means to resolve interstate disputes, arbitration has
become an important method for resolving investor–state conflicts.33 As Saracuse argues, at the end
of the twentieth and the beginning of the twenty-first century, the growth of Investor–State arbitra-tion as a means of investment dispute settlement may be considered as one of the most significant developments in international law.34 Indeed, from 1987 to May of 2018, at least 855 investor–state
treaty arbitrations have been brought reaching a record high in 2015 with 80 cases initiated in one year.35
1.2 ISDS from perspective of EU law
Before the entry into force of the Treaty of Lisbon, the EU Member States had maintained powers to independently negotiate and conclude international agreements concerning protection of foreign
27 IIAs together provided for jurisdiction of 74,8% of all cases before ICSID Tribunals (BITs provided for 60,6%). In addition, 16% of the cases was grounded in Investor-State Contract and 9,2% in Investment law of the host State. See the ICSID Caseload – Statistics, (Issue 2018-1) p. 10.
28 In May 2018, the total number of all investment treaties, according to the United Nations Conference on Trade and Development (UNCTAD), was 3,3,22, consisting of 2,946 BITs and 376 other types of international investment agreements with investment provisions. See UNCTAD, World Investment Report 2018, p. 17.
29 Such as the Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic (Netherlands– Czech and Slovak Federal Republic) (adopted 29 April 1991, entered into force 1 January 1992).
30 Apposite example is an FTA between United States and Australia, but as explained in Section 2.2, from interna-tional law perspective, CETA also falls into this category.
31 For instance, Energy Charter Treaty, NAFTA. 32 J. W. Salacuse (2015), supra note 13, p. 411. 33 Ibid. p. 411.
34 Ibid. p. 430.
investments. These circumstances naturally led to creation of complex network of IIAs concluded by MS inter se, as well as with extra-EU states. During that time, arbitrations resulting either from intra-EU/extra-EU BITs, or the agreements themselves, were of no direct concern to the EU.36
Nev-ertheless, this situation has changed with the ‘constitutional’ reform provided by the Treaty of Lis-bon.37
A common commercial policy, which defines inter alia the Union’s policy in areas of trade and investments, has always been part of exclusive competences of the EU, yet its content has evolved over time. Since 1 December 2009, when the Treaty of Lisbon has entered into force, the Treaty on the Functioning of the European Union (‘TFEU’) extended the scope of the CCP to in-clude ‘foreign direct investment’.38,39 The Court provided an interpretation of this term in its Opinion
2/15 on EU-Singapore FTA (‘EUSFTA’)40, which gives useful insight into the division of
compe-tences between the EU and Member States. The Court was called to decide whether EUSFTA can be concluded by the EU alone, or whether it must be concluded as a ‘mixed’ agreement by the EU and MS acting together. To this end, the Court had to determine the content of CCP with respect to the subject-matter covered by EUSFTA, which included inter alia provisions on investment protec-tion and ISDS. Accordingly, the Court held that the field of foreign direct investment pertains to the exclusive competence of the EU, whereas the issues related to ISDS and foreign non-direct invest-ment fall within shared competences.41 This finding ultimately led to the Court’s decision of
incom-petence of the EU to conclude EUSFTA alone.42
In accordance with EU's ambition of becoming a competitive player on the investment scene, the European Commission (‘Commission’) had to resolve the issues of the continuing validity of both intra-EU and extra-EU IIAs. That is why it has actively engaged in negotiations of its own FTAs with investment provisions with third states while trying to pressure the MS to terminate their remaining intra-EU BITs (see Section 1.2.3.).43
Although the issue of compatibility of ISDS with EU law has not yet been resolved, the im-portance of ISDS to the system of international investment law was publicly recognized by Com-mission already in 2010, when it issued a Communication entitled “Towards a Comprehensive Eu-ropean International Investment Policy”.44 Accordingly, the Commission considers ISDS as “such
36 G. A. Bermann, Navigating EU Law and the Law of International Arbitration (Arbitration International, 28(3), 2012), p. 440.
37 Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community (2007).
38 G. Uwera (2016), supra note 18, p. 105. 39 Arts. 3, 206, 207 TFEU.
40 CJEU, Opinion 2/15, Free Trade Agreement with Singapore (16 May 2017). 41 CJEU, Opinion 2/15, para. 305.
42 However, the Commission’s request was limited to the issue of competence and omitted the question of substantive compatibility of investment protection and ISDS with EU law. M. Cremona, Shaping EU Trade Policy post-Lis-bon: Opinion 2/15 of 16 May 2017: ECJ, 16 May 2017, Opinion 2/15 Free Trade Agreement with Singapore (Eu-ropean Constitutional Law Review 14(1), 2018) p. 233. See Section 1.2.2., Opinion 2/15.
43 The EU has signed 13 international agreements containing investment provisions since 1 December 2009 (e.g. CETA, EU – Korea FTA, EU – Ukraine Association Agreement or most recently the EU-Armenia CEPA signed on 24 November 2017).
an established feature of investment agreements that its absence would in fact discourage investors and make a host economy less attractive than others.”45 However, it currently seems that the EU has
found itself in a rather paradoxical situation. On one hand, it is promoting an inclusion of ISDS in its future IIAs and FTAs. On the other hand, the Union’s own principles derived from the nature of its legal system seem to raise issues of ISDS’ incompatibility with EU law (Section 1.2.1).
1.2.1 Main characteristics of the EU legal system
In order to understand the Union’s approach towards the ISDS system, it is first necessary to clarify two essential elements of the EU legal order which constitute main obstacles to any autonomous international dispute settlement mechanism in the context of the EU. First, the autonomy of EU law as a foundational constitutional concept underlying the CJEU’s argumentation in several landmark EU law cases is described. Second, the CJEU’s role in EU legal order and its significance as being a guardian of the Union’s constitutional system is addressed.
Autonomy of EU legal order
The principle of autonomy is certainly the most hallowed structural principle of the EU legal order. It has been developed by the CJEU through its jurisprudence in the last five decades, first with respect to intra-EU organization of sources of law and later on the relation between the EU and international law.46 The Court relied on autonomy in the most famous EU law evergreens such as
Van Gend en Loos47, Costa/E.N.E.L.48 or Opinion 2/1349 which have shaped the Union’s legal order
to the appearance as we know it today.
The most common understanding of the autonomy principle is either independence of the EU legal order from the Member States (internal autonomy) or from the system of international law (external autonomy). The former is expressed in principles of primacy50 and direct effect51 of EU
law over national legal orders, whereas the latter implies that the integrity of EU legal order should not be undermined by the international action of neither the Union or its Member States.52
Origi-nally, the autonomy of EU law focused on its internal dimension, thereby establishing essential characteristics of EU law in relation to MS law – EU law stems from an independent source of law, and enjoys primacy and direct effect over the laws of the Member States. The implications of the external autonomy of EU law surfaced later, with increasing activity of the EU on international
45 Ibid. p. 10; See also M. Burgstaller, Dispute Settlement In EU International Investment Agreements With Third States: Three Salient Problems, (The Journal of World Investment & Trade 15(3-4), 2014), p. 553.
46 First reference to autonomy principle can be found in the CJEU’s decision Costa v. E.N.E.L. (1967). 47 CJEU, Judgement, C-26/62, Van Gend en Loos (5 February 1963).
48 CJEU, Judgement, C-6/64, Costa/ENEL (15 July 1964).
49 CJEU, Opinion 2/13, Accession of the European Union to the European Convention for the Protection of Human Rights and Fundamental Freedoms, (18 December 2014).
50 CJEU, Judgement, C-6/64, Costa/ENEL (15 July 1964).
51 CJEU, Judgement, C-26/62, Van Gend en Loos (5 February 1963).
plane.53 Here, autonomy is a key concept for the functioning of the EU as an international actor with
the ability to determine its interactions with other international legal regimes.54 This also includes
the Union’s approach towards competences of international courts and tribunals acting outside of the EU framework.55 This is precisely where ISDS comes into play, because despite its specific
features, it also falls within this category. Therefore, the EU’s approach towards and the IDS is highly relevant also for the purpose of our research. To provide an outline of the Union’s perspec-tive, a summary of the CJEU’s jurisprudence concerning the relationship between the EU and inter-national dispute settlement mechanisms is included in Section 1.2.2.
The CJEU’s in EU legal order
In order to understand the relationship between the IDS and EU law, it is helpful to look closely on the Union’s unique judicial structure and how it may be influenced by the IDS.56 The EU judicial
structure consists of Member States courts and the Court of Justice of the European Union. The main role of the CJEU is to give legal judgments on cases brought before it in order to secure uni-form interpretation and full effect of EU law. Moreover, the Court acts as a guardian of essential characteristics of the EU legal order, such as its autonomy, the internal division of competences or allocation of powers of EU institutions. In that sense, the CJEU should be perceived not only as a mere judicial organ of the EU, but also as a constitutional court protecting the independent source of its legal order – the EU Treaties. To effectively fulfil its role, the Court is equipped with a wide variety of competences, however, for the purpose of this thesis, only those which in some way in-fluence the shaping of EU investment policy are further examined.
The jurisdiction of the CJEU is grounded in Article 19(1) TEU which provides that the Court „shall ensure that in the interpretation and application of the Treaties the law is observed“. Hence, the Court has exclusive jurisdiction to provide binding and final interpretation of EU law within what it called a ‘new legal order of international law’. 57,58 In addition, the Court itself has held, that
its jurisdiction forms a “fundamental feature of the EU system”59, which as such must be protected
from possible adverse effects of international agreements providing for IDS.
As a ‘keystone’60 of the functioning of the EU judicial system is considered the preliminary
reference mechanism provided under Article 267 TFEU through which a judicial dialogue between a court or tribunal of Member State and the CJEU is facilitated.61 Such mechanism is essential for
an effective and uniform interpretation of EU law, but also to ensure that the essential characteristics of the very nature of EU law are preserved. The preliminary ruling procedure thus forms a
53 P. Niemelä, The Relationship of EU Law and Bilateral Investment Treaties of EU Member States: Treaty Conflict, Harmonious Coexistence and the Critique of Investment Arbitration, (Academic Dissertation, University of Helsinki, September 2017), p. 117.
54 J. Odermatt (2016) supra note 52, p. 5. 55 G. Uwera (2016), supra note 18, p. 112.
56 L. Ankersmith, Achmea: The Beginning of the End for ISDS in and with Europe? (Investment Treaty News, 24 April 2018), p. 3.
57 CJEU, Judgement, C-26/62, Van Gend en Loos (5 February 1963), p. 12. 58 G. Uwera (2016), supra note 18, p. 111.
59 CJEU, Opinion 2/13, para. 202. 60 CJEU, Opinion 2/13, para. 176.
fundamental basis of functioning of EU law and the CJEU has been eager to maintain the power of MS courts to make preliminary references.62
Beyond the preliminary ruling mechanism there are other ways through which the Court carries out its ‘constitutional’ role, in particular with respect to conclusion of international agreements by the EU. To this effect, two procedures are provided by the EU Treaties to enable the CJEU’s in-volvement in the treaty-making process. First, an advisory opinion under Article 218 (11) TFEU provides that before a conclusion of an ‘envisaged agreement’ the CJEU has a competence to issue an opinion on its compatibility with EU law (ex ante review). However, the Court does not conduct such review ex officio, but only after a request from one of four possible applicants, namely the Member States, the European Parliament, the Council and the Commission. The authority of the CJEU is reflected in the consequence of its adverse opinion – in such case the “agreement envisaged may not enter into force unless it is amended, or the Treaties are revised.” Second, the judicial review procedure pursuant to Articles 263 and 264 TFEU allows the Court to review the legality of acts of EU institutions which are intended to produce legal effects (ex post review). With respect to international agreements under Article 218(6) TFEU, on a proposal by the negotiator, the Council adopts a decision concluding the agreement. Such decision is thus subject to the review, and the Court thus may declare it to be void. However, as Uwera correctly points out, “contrary to the ad-visory opinion procedure which takes place prior to the conclusion of the envisaged agreement, in these circumstances the agreement would normally already have entered into force. Therefore, if the ISDS clause inserted in an EU international agreement was rejected by the CJEU, there could be profound implications for the possible protection of investors.”63
Finally, Article 344 TFEU prohibits Member States to submit a dispute concerning an inter-pretation or application of the Treaties to any other method of dispute settlement than those provided under EU law. Based on this provision, the Court considered its own jurisdiction as forming a part of the very foundations of the Community and therefore equally protected by the autonomy princi-ple.64 This provision thus vests exclusive jurisdiction in relation to matters dealing with EU law in
the CJEU, which may not be altered by international agreements of neither the EU or its Member States.
In conclusion, the Court has the capacity to prevent the establishment of any international dis-pute settlement mechanism as envisaged by an international agreement to which the EU is to become a party. Moreover, as evidenced in its case-law, it can restrict the effect of decisions of such inter-national court or tribunal if it affects the internal legal order of the EU.65 Hence, the CJEU will play
an important role in the re-defining of the direction of the future EU foreign investment policy in-cluding the determination of legality of the ISDS system included in future IIAs (inin-cluding CETA).66
62 See Section 2.2.3.
63 G. Uwera (2016), supra note 18, p. 114.
64 See CJEU Opinion 1/91 para. 35, and Opinion 1/00, paras. 11-12; judgments in Commission v Ireland, C 459/03, paras. 123, 136, and Kadi and Al Barakaat International Foundation v Council and Commission, para. 282. 65 As evidenced by denying direct effect to WTO law (including DSB decisions) within the EU legal order. See also
CJEU Judgement, Case C-377/02, Léon Van Parys NV (1 March 2005), para 54. G. Uwera (2016), supra note 18, p. 113.
1.2.2 The CJEU’s jurisprudence on International Dispute Settlement
It is inevitable that international law-making practice entails disputes and conflicts which arise on the basis of the rules set therein. International dispute settlement bodies are thus essential for the resolution of such conflicts because they contribute to the fulfilment of the fundamental purpose of international law – the maintenance of international peace and security.67 In the last four decades,
we have witnessed an ongoing proliferation of various kinds of international courts and tribunals. Each of them is characteristic for its specific institutional features (court-like v. ad hoc), subjects with a right of access to the court/tribunal (states v. individuals), their substantive competences (policy v. individual rights) and, particularly their areas of operation (human rights, int. criminal law, int. trade law, int. investment law).
The EU as an international actor is oftentimes limited in its ability to accede to certain types of IDS simply because they provide only for the possibility of state membership. Nevertheless, there are examples of the Union’s successful participation in IDS such as the WTO (DSB and AB), UN-CLOS (ITLOS) or the Energy Charter Treaty (the EU is a party to ECT, however has not yet been part of any of the dispute settlement mechanisms).68 At the time of writing of this thesis, the CJEU
has not yet decided upon the compatibility of the ISDS mechanism with EU law. Still, there is es-tablished case-law of the CJEU concerning the conclusion of international agreements providing for IDS which sets out basic conditions of IDS‘ compatibility with EU Treaties.
Opinion 1/91
The opinion on the agreement aiming to establish the European Economic Area (EEA agreement)69
was the first case in which the Court considered the creation of an alternative dispute resolution system established by an international agreement. The EEA agreement was supposed to create a sys-tem of judicial protection covering the European Communities and the EFTA States associated in the EEA.70 The EEA agreement was to be concluded between, on the one hand, states which were
members of the European Free Trade Association and, on the other, the European Community and its Member States, thus, from the EU perspective, as a mixed agreement.
In its adverse opinion, the Court admitted that „an international agreement providing for such system of courts is in principle compatible with Community law“, because „the Community's com-petence in the field of international relations and its capacity to conclude international agreements necessarily entails the power to submit to the decisions of a court which is created … by such an agreement….“71 Still, it found the dispute settlement mechanism to be in conflict with Article 19
TEU (ex Article 220 EC). Accordingly, “the jurisdiction conferred on the EEA Court … under the [EEA agreement] is likely adversely to affect the allocation of responsibilities defined in the Treaties
67 M. N. Shaw, International Law (7th ed. Cambridge University Press 2014), p. 1.
68 C. Hillion, R. A. Wessel, The European Union and International Dispute Settlement: Mapping Principles and Con-ditions, In: M. Cremona, A. Thies, R. A Wessel, The European Union And International Dispute Settlement (Hart Publishing 2017), p. 1.
69 CJEU, Opinion 1/91, Draft agreement between the Community, on the one hand, and the countries of the European Free Trade Association, on the other, relating to the creation of the European Economic Area (14 December 1991). 70 G. Uwera (2016), supra note 18, p. 117.
and, hence, the autonomy of the (EU) legal order”.72 The Court emphasized, that the proposed EEA
court “may undermine the autonomy of the Community legal order” because its decisions would involve interpretation and application of EU law and “would be binding on the Community institu-tions, including the Court of Justice”.73
Consequently, if the extra-EU court’s interpretation of EU law has a binding effect on the EU institutions, it poses a threat to the autonomy of EU law and is thus incompatible with EU law. In other words, the Court rejected the possibility that any other court or tribunal other than the CJEU, could provide final and binding interpretation of EU law since it remains its own exclusive compe-tence grounded in Article 344 TFEU.
Opinion 1/00
The Commission lodged a request for an opinion on the European Common Aviation Area agree-ment (ECAA agreeagree-ment) which was to be concluded by the EU, the EFTA states and other European countries. In addition to setting a single set of rules governing access to air transport, the agreement also provided for the establishment of a Joint Committee tasked to ensure uniform interpretation of the ECAA agreement. 74
In the Opinion 1/0075 the Court found the ECAA agreement compatible with EU Treaties.76 It
stressed two reasons why in this case, compared to the Opinion 1/91, the proposed Joint Committee does not violate EU law. First, since the MS were not parties to the ECAA treaty, the Joint Com-mittee would not define the respective powers of the Member States and the Union while applying or interpreting the agreement.77 Second, “the fact that the Member States are not parties to the
ECAA agreement ensures that disputes between the Member States, or between those States and the [EU] institutions, concerning interpretation of the rules of [EU] law … will continue to be dealt with exclusively by the machinery provided for by the Treaty”.78 Finally, the Court concluded that
„alt-hough the proposed ECAA Agreement affects the powers of the Community institutions, it does not alter the essential character of those powers and, accordingly, does not undermine the autonomy of the Community legal order.”79
The rationale of the Court’s decision is the preservation of the CJEU’s capacity under the ECAA agreement, to rule on all “questions concerning the legality of decisions taken by Community institutions.”80 This type of mechanism is in line with the Court's exclusive power under Article 267
TFEU (ex Article 234 TEC) to review the legality of acts of the Community institutions.81 In
addi-tion, the decisions of the CJEU flowing from the exercise of those powers were to be binding in all
72 Ibid. para. 39. 73 Ibid.
74 G. Uwera (2016), supra note 18, p. 119.
75 CJEU, Opinion 1/00, Proposed agreement between the European Community and non-Member States on the estab-lishment of a European Common Aviation Area [18 April 2002].
76 Ibid. para. 46. 77 Ibid. para. 16. 78 Ibid. para. 17. 79 Ibid. para. 21. 80 Ibid. para. 24. 81 Ibid.
respects.82 Consequently, the construction of the ECAA agreement provided sufficient involvement
of the Court to ensure uniform interpretation of EU law.
The Mox Plant case83
The case between the Commission and Ireland concerned a dispute between the United Kingdom and Ireland about the initiation of the proceedings under the UN Convention on the Law of the Sea (‘UNCLOS’). It is necessary to note that UNCLOS was concluded as a mixed agreement and the EU is thus party to the treaty. In casu the Court was called to decide whether Ireland’s initiation of the proceedings against the UK violated Article 344 TFEU (ex Article 292 EC).84
This is the first case in which the Commission initiated infringement proceedings while relying on Article 344 TFEU, claiming that Ireland did not respect the exclusive jurisdiction of the Court to rule on any dispute concerning the interpretation and application of EU law.85,86 By virtue of its
mixed nature, UNCLOS has become an integral part of the Community legal order. Hence, the pro-visions on which the tribunal was called to decide on (maritime pollution), were largely regulated by Community law, and, therefore, were covered by the Court’s exclusive jurisdiction.87
Conse-quently, the Court held, that by initiating dispute settlement proceedings, Ireland had failed to com-ply with its obligations under Article 344 TFEU and had disregarded the principle of sincere coop-eration pursuant to Article 4 (3) TEU.88 It has done so by not respecting the precedence of dispute
settlement methods established by EU law. The Court referred to Opinions 1/91 and 1/00 and em-phasized that that “an international agreement cannot affect the allocation of responsibilities defined in the Treaties (the exclusive jurisdiction of the Court) and, consequently, the autonomy of the Com-munity legal system”.89
Opinion 1/09
In 2011, the CJEU issued its opinion on the European and Community Patents Courts agreement (‘PC agreement’). The purpose of the PC agreement was to establish a litigation system, which would bring together the existing European Patent Convention and European Patent Office system and the parallel system for patents instituted by various EU law measures. The Patents Court was to be composed of a court of first instance and a court of appeal which was supposed to replace do-mestic jurisdiction.90 The PC agreement was to be concluded between the Member States, the
Eu-ropean Union and third countries which were parties to the EPC.
In the Opinion 1/0991, the Court first clarified that the PC agreement cannot be in conflict with
Article 344 TFEU because “that article merely prohibits Member States from submitting a dispute
82 P. Niemelä (2017), supra note 53, p. 125.
83 CJEU, Judgement, C-459/03, Commission v. Ireland (30 May 2006).
84 Article 344 TFEU: ‘Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein.’
85 G. Uwera (2016), supra note 18, p.116.
86 CJEU, Case C-459/03, Commission v. Ireland (30 May 2006), para. 60. 87 Ibid. para. 110.
88 Ibid. paras. 169-171. 89 Ibid. para. 123.
90 G. Uwera (2016), supra note 18, p. 119.
concerning the interpretation or application of the Treaties to any method of settlement other than those provided for in the Treaties”92 whereas the jurisdiction of the PC granted by the PC agreement
would relate only to “disputes between individuals in the field of patents”.93 The Court considered
the Opinion 1/91, in that the EU has the capacity to submit itself to the decisions of a jurisdiction created or designated by international agreements.94 Yet, it concluded that the preliminary rulings
system would be impaired if an external mechanism would interpret and apply EU law instead of the MS’ national courts and the CJEU. The Court stressed the importance of safeguarding the ‘ju-dicial dialogue’ anchored in the preliminary rulings system under Article 267 TFEU and its indis-pensability for the preservation of the very nature of the EU law.95 In this respect the Court held that
the PC agreement would deprive national courts of their powers in relation to the interpretation and application of EU law, and the CJEU of its powers to reply to questions of the MS courts which “would alter the essential character of the powers which the Treaties confer” on EU institutions.96,97 Opinion 2/13
In the Opinion 2/13 the Court was tasked to decide on the long-awaited accession by the EU to the European Convention for the Protection of Human Rights and Fundamental Freedoms (‘ECHR’). As a result of the previous adverse Opinion 2/9498, in which the Court held that the Community
lacked competence to accede to the ECHR, the Treaty of Lisbon has introduced Article 6 (2)TEU99
which expressly provides for the EU’s accession. This was the first step towards the accession which ultimately led to a draft accession agreement in 2013 (‘Accession Agreement’).
In the Opinion 2/13100, the Court provided extensive arguments in relation to the effects of
external judicial scrutiny, thereby setting specific conditions under which the EU can accede to ECHR.101 It has found seven specific reasons for incompatibility of the Accession Agreement with
EU law, most of them tied to specifics of the Accession Agreement itself. In this summary, only the reasons generally applicable for the research focus of this thesis are addressed.
First, the Court reiterated the importance of EU autonomy which is justified by the essential characteristics of EU legal order, in particular its constitutional nature based on conferred powers from MS to EU and its institutions.102 Second, it described the foundations of the principle of sincere
92 Ibid. para. 63.
93 The Opinion 1/09 has been quoted by arbitral tribunals to confirm the inapplicability of Article 344 TFEU to ISDS, as it involves disputes between individuals and states and not only purely interstate disputes. However, the Court in Achmea applied Article 344 TFEU also to ISDS. See Opinion 1/09 para. 63.
94 CJEU, Opinion 1/91, para. 40. 95 Ibid. paras 80-7.
96 P. Niemelä (2017), supra note 53, p. 130. 97 CJEU, Opinion 1/09, para. 89.
98 CJEU, Opinion 2/94, Accession by the Community to the European Convention for the Protection of Human Rights and Fundamental Freedoms (28 March 1996).
99 Article 6 (2) TEU: ‘The Union shall accede to the European Convention for the Protection of Human Rights and Fundamental Freedoms. Such accession shall not affect the Union's competences as defined in the Treaties.’ 100 CJEU, Opinion 2/13, Accession of the European Union to the European Convention for the Protection of Human
Rights and Fundamental Freedoms (18 December 2014). 101 C. Hillion, R. A. Wessel (2017), supra note 68, p. 11. 102 CJEU, Opinion 2/13, paras 165-167.
cooperation based on the “premiss that each Member State shares with all the other Member States, and recognises that they share with it, a set of common values on which the EU is founded” which implies the existence of mutual trust between the Member States.103 The MS are obliged “to ensure,
in their respective territories, the application of and respect for EU law”.104 Third, the Court
empha-sized the importance of EU judicial system in ensuring, that aforementioned essential characteristics and autonomy of the EU legal order are preserved.105 Accordingly, “it is for the national courts and
tribunals and for the Court of Justice to ensure the full application of EU law in all Member States and … judicial protection of an individual’s rights under that law”.106 To this end, the Court stressed
that the preliminary ruling procedure under 267 TFEU is considered a ‘keystone’ in setting up a dialogue between the CJEU and the national court of the Member States.107
The Court then repeated its view from Opinion 1/91 on the fundamental compatibility of an international agreement providing for a court with EU Treaties if “the indispensable conditions for safeguarding the essential character of those powers are satisfied and, consequently, there is no ad-verse effect on the autonomy of the EU legal order”.108 In this case, however, the Court found that
the European Court of Human Rights (‘ECtHR’) would bind the EU and its institutions, including the CJEU, “to a particular interpretation of the rules of EU law”.109 This would “affect the allocation
of powers fixed by the Treaties or, consequently, the autonomy of the EU legal system” in that the ECtHR would take over the exclusive competence of the CJEU embodied in Article 344 TFEU. In conclusion, the Court gave second adverse opinion in regard to ECHR, this time based primarily on the failure of the Accession Agreement to have regard to specific characteristics of EU law.110 Opinion 2/15111
On 16 May 2017, the CJEU published its Opinion 2/15 regarding the EU-Singapore FTA. The EUSFTA was the first trade agreement to rely on the EU’s competence in the field of CCP as ex-panded post-Lisbon. The issue raised in this opinion was whether the EU can conclude the EUSFTA alone, or whether it has to be concluded as a mixed agreement. The content of the decision is briefly described in Section 1.2., suffice it to say here, that the Court held that the subject matter of the EUSFTA did not fall entirely within the exclusive competence of EU, meaning that the EUSFTA could only be concluded as a mixed agreement.
What is also important about Opinion 2/15, is that the Court avoided answering the question of compatibility of ISDS with EU law. Indeed, the Court repeated three times that its Opinion in this case is without prejudice to the compatibility of the content of the agreement with EU law.112
Con-sequently, in light of this Opinion, Belgium requested an opinion from the CJEU regarding the com-patibility of Section 8, Section F of CETA with EU Treaties. Hence, the Opinion 2/15 might have
103 CJEU, Opinion 2/13, para. 168. 104 Ibid. paras. 168, 173
105 Ibid. para. 174. 106 Ibid. para. 175.
107 Ibid. para. 176, see also Opinion 1/09, paras. 80-7. 108 Ibid. paras. 182-183.
109 Ibid. para. 184.
110 G. Uwera (2016), supra note 18, p. 125.
111 CJEU, Opinion 2/15, Free Trade Agreement with Singapore (16 May 2017).
been an incentive for Belgian federal government to ask the question which has been hanging in the air since the emergence of EU investment policy – is the ISDS mechanism compatible with EU Treaties?113
1.2.3 International Investment Agreements in the EU context
The Treaty of Lisbon serves as a starting point also for the analysis of a Europeanist perspective on IIAs. The emergence of the EU’s own investment policy as a part of CCP entails the necessity of determining its approach towards different categories of IIAs situated within the EU legal order. Undermentioned categories differ from the categorization of IIAs under international law,114 as two
additional criteria play a key role in determining the status of particular IIA under EU law.
First, the aspect of the EU’s participation in the agreement is of importance. Accordingly, we differentiate between IIAs concluded by Member States only (‘MS IIAs’), IIAs concluded between the EU and its Member States acting as one party (‘mixed IIAs’) and agreements concluded by the EU alone (‘EU IIAs’).115 Second, within the category of MS IIAs, the territorial scope of specific
agreement is a decisive factor. In other words, from the perspective of EU law, we distinguish be-tween IIAs concluded exclusively by Member States inter se (i.e. inside the EU territory) – ‚intra-EU BITs‘ and IIAs between the Member States and third countries (i.e. outside the ‚intra-EU territory) – ‘extra-EU BITs’.
This exhaustive categorization determines a status of a particular IIA in the EU legal order and its compatibility with EU law. For the purpose of this thesis, only the status of intra-EU BITs, extra-EU BITs and mixed agreements under extra-EU law are further described.
Intra-EU BITs
Under the term ‘intra-EU BITs’ we understand bilateral investment treaties concluded between two EU Member States. Generally, intra-EU agreements are governed by the principle of supremacy; ergo if there is conflict between an intra-EU international agreement with EU law, the latter pre-vails.116 From the perspective of international law, the agreement remains valid as it is a sovereign
right of the specific MS terminate its international agreements.117 However, from the perspective of
EU law, the treaty cannot be applied to justify the breach of the EU Treaties.118
Specific circumstances surround the narrow category of intra-EU BITs. In contrast to extra-EU agreements, intra-EU BITs are not governed by Article 351 TFEU, because they are not concluded “between one or more Member States … and one or more third countries”. In 2013, the Commission announced that intra-EU BITs discriminate between MS, are illegal under EU law and prompted
113 Belgian Ministry of Foreign Affairs, Minister Reynders submits request for opinion on CETA (6 September 2017). 114 See Section 1.1.
115 However, in the Opinion 2/15, the Court held that according to the current wording of EU Treaties, the EU alone cannot conclude any IIA containing ISDS or indirect investment as these areas fall within competences shared with EU MS.
116 P. J. Kuijper and others, The Law Of EU External Relations (2nd ed, Oxford: Oxford University Press 2015), p. 810.
117 See Articles 30, 59 VCLT.
Member States to terminate them.119 After initial passivity, the Commission has been gradually
in-creasing its pressure which led to an initiation of infringement proceedings in 2015 against the Neth-erlands, Austria, Romania, Slovakia and Sweden in order to formally request the denouncement of their intra-EU BITs. However, these actions had only limited impact on the actual practice of the MS and another 197 intra-EU BITs still remain in force.120
Extra-EU BITs
Extra-EU BITs are international investment agreements concluded between EU Member States and third countries.121 From the EU perspective, we differentiate between ‘prior’ and ‘new’ international
agreements of MS. Conflicts between EU law and both mentioned categories of extra-EU agree-ments do not affect the legal status of the latter, and investors from the third country may continue to demand that Member States comply with their obligations under the respective BITs.122
In regard to prior agreements, the Article 351 TFEU allows Member States to maintain their international commitments to third states undertaken before becoming members of the Union.123
However, it also imposes an obligation on the MS to eliminate any conflict between extra-EU trea-ties and EU law in favour of EU law. Hence, the MS have the duty of renegotiation, adjustment or termination of such international agreements to the extent of their incompatibility with EU law. Conclusion of new agreements is not addressed in the EU Treaties, but it is a subject to general principles of Union law. Therefore, new agreements may not be concluded in areas for which the Union has not acquired exclusive external competence and must be in line with substantive EU law.124
Significantly, in connection to extra-EU BITs, the so-called ‘grandfathering regulation’ No. 1219/2012 (‘extra-EU BIT regulation’) has been adopted, in order to create a transitional regime for such agreements until the EU will negotiate agreements with third states of its own.125 The
extra-EU BIT regulation provides that extra-extra-EU BITs remain binding on the Member States under public international law and will be progressively replaced by agreements of the Union relating to the same subject matter.126 Accordingly, until the EU concludes an investment treaty with the same state and
with the same subject matter, the existing extra-EU BITs remain valid. Where any incompatibilities with EU law occur, MS are required to take necessary measures to eliminate them.127
The future of 1199 extra-EU BITs currently in force lies in the hands of the EU, which will have to take part in thorough negotiations with third states in order to eventually replace them all. This process, however, does not depend only on Union’s activity, but also on the willingness of the state’s parties to those BITs to engage into re-negotiation of their existing ties with individual Mem-ber States.
119 Ibid.
120 UNCTAD International Investment Agreements Navigatior.
121 Article 2(1) Council Regulation (EU) 1219/2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries.
122 P. Niemelä (2017), supra note 53, p. 28. 123 L. Ankersmith (2018), supra note 56, p. 6.
124 P. J. Kuijper and others (2015), supra note 116, p. 806. 125 Council Regulation (EU) 1219/2012, supra note 121. 126 Ibid. para. 5 preamble.
Mixed agreements
Agreements concluded simultaneously by the EU and all its Member States with a third country are called mixed agreements.128 As other international agreements concluded by the EU, they are also
bind the EU institutions and Member States as they become an ‘integral part of the EU legal or-der’.129 The so-called ‘mixity’ is generally used where the subject matter of the envisaged agreement
falls beyond the scope of the EU’s exclusive competences. Therefore, by virtue of their consent, the Member States complement Union’s powers in matters falling within their competence.130 With
regard to issues of foreign investment, it is important to note that the Court has decided on the division of competences within CCP in its Opinion 2/15 on EU-Singapore FTA. Accordingly, mat-ters of FDI fall within exclusive competences of the Union, whereas matmat-ters of non-direct invest-ment and ISDS fall within competences shared with MS. This has forced the EU to conclude its modern FTAs providing for ISDS such as CETA as mixed agreements.
Compared to simple EU agreements, the conclusion of mixed agreements entails addi-tional problems of requisite ratification by all MS.131 Consequently, a mixed agreement will not
enter into force unless ratified by all necessary national and federal parliaments according to respec-tive laws of the MS.132 Such process can take years and gets even more prolonged by the increasing
number of the EU MS.133 As a reaction to the Opinion 2/15, there have been suggestions for future
EU FTAs to be split into separate trade and investment agreements, in order to speed up the conclu-sion of the trade part which can be concluded by EU only.134 Nevertheless, CETA has already been
signed as a mixed agreement, and as such is a subject to the domestic ratification in Member States. This problem has been made less grievous by provisional application of majority of its provisions from 21 September 2017. Still, the process of ratification frustrates Canada as the opposite contract-ing party, as yet only 9 Member States have successfully ratified the agreement. Moreover, as Chris-tina Eckes argues, proceeding with ratification by individual MS, with a possible chance of adverse Opinion 1/17 in the background, may even amount to a violation of loyalty principle under Art. 4 (3) TEU by lack of unity in EU external representation.135
128 P. J. Kuijper and others (2015), supra note 116, p. 101.
129 Article 216 (2) TFEU; CJEU, Judgement, Case 181/73, R. & V. Haegeman v. Belgium (1974) para. 5.
130 However, oftentimes EU Member States insist on mixed character of international agreements for purely political reasons. See P. J. Kuijper and others (2015), supra note 116, p. 101.
131 Ibid. p. 157.
132 Currently, 38 chambers of MS’ national/federal parliaments must ratify the mixed agreement for the process to be complete. See European Parliament, Procedures of ratification of mixed agreements, National Parliaments Back-ground Briefing (November 2016), p. 1.
133 P. J. Kuijper and others (2015), supra note 116, p. 157.
134 S. Gáspár-Szilágyi, Opinion 2/15: Maybe it is time for the EU to conclude separate trade and investment agree-ments, (European Law Blog, 20 June 2017), p. 2.
135 C. Eckes, Don’t lead with your chin! If Member States continue with the ratification of CETA, they violate Euro-pean Union law, (EuroEuro-pean Law Blog, 13 March 2018), p. 2.
2 The CJEU Achmea decision
The recently delivered decision of the CJEU in Achmea136 case has caused mild earthquake among
law practitioners and academics from inside and outside of the EU. In particular, the decision of the Grand Chamber sparked a debate about the future of ISDS in the context of the European Union. Indeed, the reasons for incompatibility of the arbitration clause of the Netherlands - Slovakia BIT (‘NL-SK BIT’) call into question all similar intra-EU BITs. This may have profound consequences for the future development of the investment climate in the EU and may influence the practice of all involved actors: Member States, investors, arbitral tribunals and national courts.
This section is devoted to an analysis of this CJEU’s landmark decision from 6 March 2018. First, a factual background and procedural history which led to the preliminary question from Bun-desgerichtshof to the CJEU are briefly summarized (Section 2.1). Subsequently, the content of the decision with a particular focus on the specific reasons for incompatibility of the NL-SK BIT with EU law is analysed (Section 2.2).
2.1 Background summary
The dispute between Achmea B.V. and Slovak Republic arose out of measures adopted in 2006-2007 by Slovak government, by which it reversed the previous liberalization of Slovak health insur-ance market. These measures eventually prevented private health insurers in Slovakia from distrib-uting profits to their shareholders.137 Achmea, an undertaking of a Dutch insurance group, operated
in Slovakia under two insurance providers - Union poisťovňa and Union zdravotná poisťovňa, was also a subject to the governmental measures in question.
In 2008, Achmea initiated arbitration proceedings under the NL-SK BIT claiming that the measures of Slovak government amounted to indirect expropriation and violated several other sub-stantive treaty standards.138 An arbitral tribunal constituted on the basis of Article 8 NL-SK BIT
(‘BIT Tribunal’) chose Frankfurt as the place of arbitration, thereby rendering German law applica-ble as lex arbitri.139 It was already at the beginning of the proceedings when Slovakia for the first
time objected the BIT Tribunal’s jurisdiction, arguing that Article 8 of the NL-SK BIT is incompat-ible with EU law, in particular with Articles 18, 267 and 344 TFEU (‘Intra-EU jurisdictional objec-tion‘).140 By an interlocutory award from 26 October 2010 the BIT Tribunal rejected these
136 CJEU, Judgement, C-284/16, Slovak Republic v Achmea B.V (6 March 2018).
137 L. Bizikova, The CJEU in Slovakia v Achmea or Is Justice Best Served Cold?, (Kluwer Arbitration Blog, 11 March 2018), p. 1.
138 PCA Case No. 2008-13, Achmea B.V. v. Slovak Republic, Award (7 December 2012), para. 7.
139 B. Hess, The Fate of Investment Dispute Resolution after the Achmea Decision of the European Court of Justice (MPILux Research Paper 2018 (3), 30 March 2018), p. 6.
140 The Intra-EU jurisdictional objection was first raised in Slovak Statement of Defence dated 30 October 2009. See PCA Case No. 2008-13, Achmea B.V. v. Slovak Republic, Award on jurisdiction, arbitrability and suspension (26 October 2010) paras. 8-9, 57.
