UNIVERSITY OF AMSTERDAM FACULTY OF LAW
12-01-2020
The EU and Investor-to-State Dispute Settlement,
the compatibility of a Multilateral Investment Court
with EU law
Noud Bart 11035838
noudbart@hotmail.com LLM European Union Law Supervisor: S. Blockmans
[The following thesis will discuss the compatibility of the envisaged Multilateral Investment Court (MIC). It will do so by dividing the subject into three chapters. The first chapter will start by providing an oversight of the development of the EU’s competence of investment. The second chapter will assess the current situation of ISDS and will identify issues with it, after which it will explain how the MIC will resolve these. The final chapter will use the most recent case-law on this subject in order to analyse the compatibility of the MIC with EU law. Especially opinion 1/17, which came out last year is of relevance, and can be used to model the MIC after. The conclusion of this thesis is that the MIC can be compatible with EU law.]
Table of Contents
I. Introduction
II. The Development of EU Investment Competence III. The Multilateral Investment Court
IV. Analysis on the Compatibility of the ICS/MIC with EU law V. Conclusion
I. Introduction
With the 2009 Lisbon treaty amendments, the EU became the main actor regarding international investment agreements (IIA’s). The treaty of Lisbon conferred the sole competence of negotiating and concluding Bilateral Investment Treaties (BIT’s) from the Member States to the institutions of the EU. It is important to note that these treaties do not include portfolio investment and Investor-to-State Dispute Settlement (ISDS)1 This will be
discussed later in this chapter. Currently over 3.000 BIT’s are in force in the world of which more than 1.400 are concluded by the EU and its member states.2 The EU is the main
recipient and the main donor of investments globally. Foreign direct investment (FDI) stocks held by investors resident in the EU amounted to €7.412 billion in 2017 while FDI stocks held by third country investors in the EU led to an amount of €6.295 billion in the same year. 3
With these amounts at stake disputes are bound to occur. In 2018, at least 71 ISDS cases were brought before an arbitrational court world-wide as opposed to 65 the year before. This is an increase of nearly 10 % and leads up to a total of 942 cases.4 ISDS cases are increasingly
brought before court and this development is not likely to stop in the coming years.
In order to more effectively handle these cases, which are now still adjudicated on an ad hoc basis the Commission aims to create a ‘’Multilateral Investment Court’’. The Commission aims to do this in order to tackle some concerns and issues that have been brought up in recent years with regard to the system of arbitrational justice that is now in place in this field of international law. These consist mostly out of concerns regarding effectiveness, legal
certainty and transparency. Chapter two will delve deeper into these. The Commission started with consultation rounds on how to improve the ISDS system in 2014. After four years of
1 David Kleimann, ’Taking Stock: EU Common Commercial Policy in the Lisbon Era’ (2011) CEPS Working
Document
https://www.ceps.eu/system/files/book/2011/04/WD%20345%20Kleimann%20on%20EU%20CCP.pdf, accessed 16th of August 2019.
2BIT’s concluded prior to 2009 included, European Union, ’Investment Disputes’ (2nd of August 2019)
http://ec.europa.eu/trade/policy/accessing-markets/dispute-settlement/investment-disputes/, accessed 16th of August 2019.
3European Union, ’Investment’(9th of April 2019)
http://ec.europa.eu/trade/policy/accessing-markets/investment/, accessed 16th of August 2019.
4 UNCTAD, Investor-State Dispute Settlement: Review of Developments in 2017 (IIA Issues Note 2018)
https://unctad.org/en/PublicationsLibrary/diaepcbinf2018d2_en.pdf; 1.
UNCTAD, Fact Sheet on Investor-State Dispute Settlement Cases in 2018 (IIA Issues Note 2019) https://unctad.org/en/PublicationsLibrary/diaepcbinf2019d4_en.pdf, 1.
negotiating and consulting stakeholders, the Council adopted and published negotiating directives for the Multilateral Investment Court on the 20th of March 2018.5
Since the creation of the EU the CJEU has always been opposed to creating a different court that could interpret EU law6. The CJEU has been accused of championing integration friendly
interpretations of EU law and of ‘’judicial activism’’ as well as trying to retain its unique position within the EU legal order.7 In the realm of international investment law and the
envisaged Multilateral Investment Court these two attitudes can render its development
difficult. The CJEU’s attitude favours a restrictive view on other courts interpreting EU law in order to protect its own legal status. In previous judgments the CJEU has always tried to protect its own monopoly on the interpretation of EU law. It is known to be critical towards any policy measures that may endanger it. However, in the recent CETA case wherein the new ISDS clauses were deemed compatible with EU law the CJEU might have changed its views.8
This thesis will discuss these topics. It will start by giving an overview of how the EU’s competences developed and how the current ISDS system came about. It will therefore look mostly at primary law and use jurisprudence of the CJEU. Secondly, it will look at the alleged issues surrounding the current ISDS system and at the envisaged Multilateral Investment Court system. Lastly, the main objective of this thesis will be discussed. It will analyse recent jurisprudence in order to assess the compatibility of the MIC with the current state of EU law. Will the MIC be compatible with EU law when tested against the case-law developed
principle of autonomy?
II. The Development of EU Investment Competence
The following chapter will provide a legal historical overview of the EU’s investment competence. In what way has the Commission tried to increase its competence regarding international investment. It is crucial to have this basic understanding in order to analyse what has now become a complex technical side of EU law.
5European Union, ’The Multilateral Investment Court project’ (30th of April 2019)
ttp://trade.ec.europa.eu/doclib/press/index.cfm?id=1608 accessed 16th of August 2019.
6 Opinion 1/09 [2009] European Patents Court ECLI:EU:C:2011; Opinion 2/13 Accession of the European Union
to the European Convention for the Protection of Human Rights and Fundamental Freedoms [2013] ECLI:EU:C:2014.
7 See e.g. Bruno de Witte, Elise Muir, ‘’Judicial Activism at the European Court of Justice’’ (Edward Elgar
Publishing, 2013).
Carl Lebeck ‘’Accession of the EU to the ECHR and the autonomy of EU law - Opinion 2/13 of the ECJ’’ [2015] ELR Vol.2 30-42.
International investments did not play a significant role up until the 1980’s. In this decade FDI started to take off.9 It is therefore only logical that policy did not develop much prior to
this decade, since policy follows practice and hardly the other way around. Yet, there are two instances in which European policymakers foresaw the need of a European investment policy of some sorts. Respectively, this was in the Spaak Report of 1956 and in opinion 1/75.10
The Spaak report was an intergovernmental committee headed by Paul-Henri Spaak which wrote recommendations to the six governments of the European Coal and Steel Community (ESCS). This eventually led to the signing of the Treaties of Rome, effectively establishing the European Economic Community (EEC). The Spaak report did not speak of regulating FDI in relation to the creation of a common commercial policy but did it with regard to the
envisaged free movement of capital. The Spaak report foresaw a regulatory gap if the free movement of capital was to be instated. With the free movement of capital within the then Community, capital would be able to enter the Community trough member states with liberal capital regimes after which they could enter any other member state. In this manner investors could use the free movement of capital to circumvent strict capital regimes. Therefore, a common external capital regime was to be considered.11 In the end the Treaty of Rome made
the free movement of capital a secondary freedom. It was subject to secondary legislation and only where necessary for the well-functioning of the Common Market. Therefore, the need for a common external capital regime did not arise and was not implemented. It was only with the increase of FDI in the 1980’s that willingness was shown to dismantle capital controls within the Common market.12 This in turn has led the prediction of the Spaak report come
true and has led the EU erect an external capital regime in the Maastricht treaty as well as to conclude more recent measures such as Regulation (EU) 2019/425 which allows the EU to screen FDI’s coming into the EU.13
The other hint at international investment policy came in opinion 1/75. The Commission aimed at establishing a European export policy under the CCP. This also included a European investment guarantee that would insure European investors against risks in third countries. The only precondition was that a BIT should exist between the EU and the third country
9 Edward M. Graham and Paul R. Krugman, ’The Surge in Foreign Direct Investment in the 1980s’ in Kenneth A.
Froot, Foreign Direct Investment (1993).
10 Robert Basedow, ’A Legal History of the EU’s International Investment Policy’ [2016] JWIT 17, 745-746. 11 Intergovernmental Committee on European Integration. The Brussels Report on the General Common Market
(Spaak Report) 1956.
12 Robert Basedow, ’A Legal History of the EU’s International Investment Policy’ [2016] JWIT 17, 746. 13 Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a
concerned. Member States were weary of the Commissions plans and the Commission decided to involve the CJEU in the matter.14 The CJEU decided in opinion 1/75 that the EU
had legal competence to harmonise national export policies but did not grant the basis for an EU BIT program.15
In the 1990’s the Uruguay rounds of discussion on the GATT took place which eventually lead to the creation of the WTO. At around the same time the IGC on the Maastricht treaty was taking place as well. Here the discussions on the EU competences in international investments were taken up again. Although the Commission was not attributed full competence over international investments as it stands today, it did manage to attain borderline competences on investment. With the creation of the external capital regime the Member States gave the EU a part to play in regulating investment market access.16 This has
led to a series of court cases in which the EU tried to enlarge its competences based on various doctrines such as the implied powers doctrine. These cases will not be explored as they are not relevant for this paper. They concern the institutions competence to conclude agreements regarding intellectual property rights and the competence to participate in the OECD. Both these subjects fall outside of the scope of this paper.17
The EU kept searching for ways to enforce its competences in order to have a stronger voice in the GATT negotiations and on the international stage in general. These debates continued throughout the IGC’s on the Treaty of Amsterdam and the Treaty of Nice. While the EC was never attributed investment competence during these negotiations a minor exclusive legal competence under the CCP was granted. This concerned the competence to regulate certain investment activities. After which accidental spill-overs led to a patchwork of investment-related competences.18 For example, the regulation of trade in services were brought under
the CCP. The GATT acknowledges the establishment of a commercial presence abroad as a type of trade in services, this is almost synonym with foreign investment. After time this has fed into the believe that the Member States aimed to empower the EU to be able to join negotiations similar to the GATTS negotiations.19
14 Opinion 1/75, [1975] Local Cost Standard ECLI:EU:C:1975:145. 15 Opinion 1/75, [1975] Local Cost Standard ECLI:EU:C:1975:145.
16 Robert Basedow, ’A Legal History of the EU’s International Investment Policy’ [2016] JWIT 17, 747-755. 17 See Opinion 1/94, Opinion 2/92.
18 Angelos Dimopoulos, EU Foreign Investment Law (OUP, 2011)
DOI:10.1093/acprof:oso/9780199698608.001.0001, 18-20.
The, as of yet, final overhaul of the Treaties came with the Treaty of Lisbon. At first it was to become the Treaty establishing a Constitution for Europe. It was in this Treaty that the reference to FDI was first introduced and after some smart politics by the Commission it survived the scrutiny of the Member States in later stages as well.20 Based on art. 48(3) TEU,
the EU decided to revise the standing Treaties by using the ‘’Convention Method.’’ This method differed from the normally used intergovernmental method used to revise the
Treaties. This method was used as it aimed to limit secrecy between national technocrats and focussed more on elected officials. The Convention entailed 102 delegates from the Member States and the institutions, 11 working groups on various parts and was headed by a
Praesidium of 12. Especially the role of this Praesidium is worth considering. The Presidium proposed to extend the Union’s competences to the regulation of FDI in its draft articles on the CCP. It argued that FDI complements and substitutes traditional trade, an argument frequently used by the Commission. On top of that the term FDI was used and not just
‘international investment’, this makes one think back of the situation after opinion 1/94 where the Commission proposed to extend CCP to FDI instead of international investment. The argument there is that FDI is less controversial. It is safe to assume that the Commission contacted the members of the Praesidium to propose this extension of the CCP.21
Although this can be considered as a smart move it did not go unnoticed. In the plenary sessions discussing the draft text a considerable amount of amendments was aimed at the external action chapter. Around a 1.000 towards the chapter as a whole and a 100 specifically at the CCP articles, of these around 31 demanded the removal of the FDI extension.22
In yet another smart move the Praesidium, due to the extensive amount, limited the delegates to just one amendment per new round. This factually saved the FDI extension as delegates were obliged to prioritise and chose to invest in more pressing matters. 23 In other words the
focussed shifted to high politics instead of technicalities, in that way the FDI extension survived the rounds of negotiations and remained in the Constitutional Treaty. This was only a short-lived period as the Constitutional Treaty was rejected by the French and the Dutch voters in referenda. Here after the text had to be renegotiated to become the Treaty of Lisbon. Again, the focussed laid on the more ‘high-political’ and more symbolic parts of the text. The
20 Treaty Establishing a Constitution for Europe [2004] OJ C310/04 art.314-315.
21 Robert Basedow, ’A Legal History of the EU’s International Investment Policy’ [2016] JWIT 17, 758-761. 22 European Convention, ‘Proposed Amendments to the Text of the Articles of the Treaty
Establishing a Constitution for Europe – Common Commercial Policy’ 2003 <http:// european-convention.eu.int/EN/amendments/amendments3dd9.html?content=866&.
lang=EN> accessed 8 October 2013.
Commission urged its, namely the DG Trade, officials to not draw attention to the FDI reference. This in order that it would not be noticed and that it would remain in the Lisbon Treaty as well.24 In the end the Treaty of Lisbon entered into force in 2009 with the extension
of FDI competence to the EU.25
Post Lisbon implications and Opinions 2/15 and 1/17
Now that established the road to Lisbon as well as how the EU acquired competence over FDI has been established, the post-Lisbon era in which we find ourselves today can be discussed. How did this competence develop in case-law and what does this mean for the Multilateral Investment Court? For this, especially Opinion 2/15 is of relevance since it defined the boundaries between either mixed or exclusive competence more clearly. The recent CETA opinion which was deemed ground-breaking for its outcome regarding the compatibility of ISDS will also be discussed.
The inclusion of FDI in art. 207 of the TFEU gave rise to certain legal questions right from the start. The first question that arose is the one of scope, how far reaching was the inclusion of FDI? Would it include only investment liberalisation, or would investment protection be a part of it as well? In addition, the conferral of FDI to the EU could have the effect of
rendering BIT’s concluded by the Member States with third countries illegitimate. This in turn could have led to legal uncertainty for both the Member States as the respective third countries.26 In response to the second cluster of questions the Commission came up with the
so-called ‘’Grandfathering regulation’’. This regulation (Regulation (EU) No 1219/2012) was a solution to the existing BIT’s problem. It provides a transitional framework in which
existing BIT’s can still remain in force. It provides that in essence the BIT’s can remain in force, if they have been made into conformity with the regulation (and EU law for that matter) where that is deemed necessary. The regulation also provides for conditions under which Member States are able to amend or to conclude BIT’s with third countries on their own
24 Ibid, 765-767.
25 Treaty on the Functioning of the European Union (TFEU) [2012] OJ C 321.
26 David Kleimann, ’Taking Stock: EU Common Commercial Policy in the Lisbon Era’ (2011) CEPS Working
Document
https://www.ceps.eu/system/files/book/2011/04/WD%20345%20Kleimann%20on%20EU%20CCP.pdf, accessed 4th of September 2019, 9.
initiative. One should think of a notification system and checks if said negotiations will not conflict with EU policy and/or law27
The first question posed regarded the scope of the FDI inclusion. The term FDI can be distinguished from portfolio investment as FDI concerns long-term investments, takeovers or a foreign investor establishing himself in another country. Portfolio investment is more short-term and usually consists of purchasing equities. By focussing on FDI and not ‘’investment’’ as a whole one can argue that portfolio investments do not fall under the competence of the EU. However, the Commission argued that the EU had an implied competence based on the provisions on the free movement of capital. It therefore argued that it had both competences on FDI and portfolio investment which would lead to the exclusive competence of investment as a whole. This in turn would mean that the Union would have had exclusive competence on investment protection as well, as investment protection agreements usually cover both FDI and portfolio investments. As one can see this situation led to some extent of uncertainty and opposing views.28 It is therefore not surprising that the Commission asked for opinion 2/15 on
these matters of competence regarding the EU-Singapore FTA.
From the start, the Singapore Agreement had been negotiated as if the EU would conclude it on its own. For the reasons stated above the Commission was of the opinion that it had exclusive competence on all parts negotiated. However, the Council and the Member States were not convinced and argued that it contained elements that were shared competence. The Singapore Agreement was one of the first of a new generation of trade agreements envisaged by the EU. These new ‘’deep and comprehensive’’ trade agreements include more than just trade liberalisation, hence the discussion on competence. It includes, amongst others, chapters on investment, intellectual property rights and ISDS. In order to secure the exclusive
competence on all elements of the Agreement the Commission sought after an opinion procedure under Art.218 TFEU. It is interesting to see that the questions only focussed on formal competence and not on compatibility. It was only a matter of time before the compatibility came into question with opinion 1/17.29
27 Regulation (EU) No 1219/2012 of the European Parliament and of the Council of 12 December 2012
establishing transitional arrangements for bilateral investment agreements between Member States and third countries, [2012] L351/40.
28 Markus Krajewski, ’The Reform of the Common Commercial Policy’ in Andrea Biondi, EU Law After Lisbon
(OUP 2012) 301-304.
29 Marise Cremona, ’Shaping EU Trade Policy post-Lisbon: Opinion 2/15 of 16 May 2017’ [2018] ECLR 14,
Opinion 2/15 concluded that non-direct foreign investment as well as clauses on ISDS do not fall within the exclusive competence of the EU, instead that they are a shared competence. Therefore, the Agreement cannot fall under the EU’s exclusive competence as well. The other chapters that did fall under the exclusive competence of the EU did so either under Article 3(1)(e) or under Article 3(2) TFEU. So, either under the CCP or the implied powers doctrine.30
The Court argues in paragraph 83 the following: ‘’the use (…) of the words ‘foreign direct investment’ in Article 207(1) TFEU is an unequivocal expression of their intention not to include other foreign investment in the common commercial policy. Accordingly,
commitments vis-à-vis a third State relating to other foreign investment do not fall within the exclusive competence of the European Union pursuant to Article 3(1)(e) TFEU.’’31 It is clear
that the Court took the position that by explicitly referring to ‘’FDI’’ the drafters meant to exclude non-foreign direct investment. Therefore, it could not be an exclusive competence of the EU.
With regard to ISDS the Court in paragraph 292 ruled the following: ‘’ Such a regime, which removes disputes from the jurisdiction of the courts of the Member States, cannot be of a purely ancillary nature within the meaning of the case-law recalled in paragraph 276 of this opinion and cannot, therefore, be established without the Member States’ consent.’’32 This
leads to the conclusion that chapters regarding ISDS cannot be of an exclusive competence of the EU as well. While relatively short compared to the entire judgment these paragraphs summarize why non-foreign direct investment and ISDS are to be considered as falling under shared competences of the Member States and the EU.
The Court basically said that by using the express wording of ‘’Foreign Direct investment’’ the treaty drafters meant to only include FDI and therefore exclude portfolio investments. With regard to ISDS the Court ruled that since the ISDS system would take disputes out of the jurisdiction of national courts, functioning in their role of European courts, this could not be done without the Member States having a say in it. Therefore, it should be a shared competence.
The result of this ruling was that the Commission decided to split the agreement into two separate agreements. One that consists out of chapters that fall under the EU exclusive
30 Ibid, 237.
31 Opinion 2/15, [2017] EU Singapore FTA ECLI:EU:C:2017:376, para. 83. 32 Ibid, para. 292.
competence and one that falls under the shared competence and thus has to be ratified by the Member States as well.33
This illustrates the shift in policy that opinion 2/15 has brought about. In future trade agreements it is expected that the EU will detach the provisions on investment and/or ISDS from those that fall under EU exclusive competences. This is supported by the mandates for trade negotiations with Australia and New Zealand in which no reference to ISDS is made.34
This ensures that not entire trade agreements have to pass through national parliaments. However, political pressure can lead to the choice for mixity as some provisions can be highly politized as happened with the CETA agreement.35
This leads us to opinion 1/17 which dealt with the compatibility of ISDS with EU law. A question which was omitted when the Commission requested opinion 2/15.
The difference in CETA is that regarding to ISDS it envisages a new system. The Investment Court System (ICS) is a step away from the traditional ad hoc system of arbitration towards a more institutionalised form. One can see that this is in preparation for the Multilateral Court System. However, this has not prevented the Walloon government to request the Belgian federal government to seek out an opinion procedure regarding the compatibility of this new form of investment arbitration.
In opinion 1/17 the question of compatibility was broken down in three sub questions. These considered: 1. The principle of autonomy of EU law, 2. The general principle of equal treatment and finally 3. The right of access to an independent tribunal.
With regard to the first question the Court ruled, in reference to its Achmea case-law that ‘’an international agreement providing for the establishment of a court responsible for the
interpretation of its provisions and whose decision are binding on the institutions, including the Court of Justice, is not in principle incompatible with EU law, providing that ‘’the
autonomy of the EU and its legal order is respected’’.36 In reference to CETA this means that
in principle the ICS does not breach the autonomy of the EU legal order. The autonomy of the EU legal order would only be breached if the CETA tribunal could interpret or apply EU law
33 European Union, ’EU Singapore Agreements’ (25th of February 2019)
https://ec.europa.eu/trade/policy/in-focus/eu-singapore-agreement/ accessed 8th of September 2019.
34 Council of the European Union, ‘Negotiating directives for a Free Trade Agreement with Australia’ (8th of
May 2018) http://data.consilium.europa.eu/doc/document/ST-7663-2018-ADD-1-DCL-1/en/pdf.
Council of the European Union, ‘Negotiating directives for a Free Trade Agreement with New Zealand’ (8th of May 2018) http://data.consilium.europa.eu/doc/document/ST-7661-2018-ADD-1-DCL-1/en/pdf.
35 Dylan Geraerts, ‘Changes in EU Trade Policy After Opinion 2/15’ [2018] GTCJ 13, 14-17. 36 Case C-284/16 Slovak Republic v Achmea [2018] ECLI:EU:C:2018:158, para. 57.
other than the provisions in the CETA agreement or if the CETA tribunal could issue awards preventing the EU institution from operating effectively within the EU framework (think of awarding damages equivalent to fines set by the competition authorities). The Court
concluded that the CETA agreement would limit the Tribunal to only apply the provisions of the Agreement itself and only be able to take domestic law as a matter of fact. Therefore, the autonomy of EU law is safeguarded. The Court also concluded that enough safeguards were in place to prevent situations in which the EU institutions would not be able to effectively operate.37
The principle of equal treatment was supposedly an issue because the Canadian investors would be able to rely on certain provision of the CETA but EU native investors investing within the same market would not. However, the situation of the Canadian investors is only comparable with EU investors investing in Canada and not with EU investors investing within the same market. Here, the Court found no difference of treatment of persons in a relevant similar situation.38
Lastly, the Court did not find a breach of the right of access to an independent court.39 It
highlighted that in absence of rules ensuring that the CETA Tribunals are financially
accessible to small- and medium-sized enterprises the ICS may in practice only be accessible to investors with significant financial resources. However, the Court found that the
Commission will undertake significant measures to ensure that access would be guaranteed for small- and medium-sized enterprises and private individuals.The Court also found enough guarantees in place for the safeguarding of the Tribunals independence.40
With all these questions answered positively the envisaged new ISDS system was declared compatible with EU law. It is interesting to note that a reference to the Multilateral
Investment Court was already made (§108). This judgement was undoubtedly a win for the DG Trade and is a huge milestone for the creation of the Multilateral Investment Court. The following chapter will deal more with the Multilateral Investment Court.
37 Opinion 1/17 [2017] CETA ECLI:EU:C:2019, paras. 106-161. 38 Ibid, paras.162-186.
39 Ibid,189-244.
40 Guillaume Croisant, ‘Opinion 1/17 – The CJEU Confirms that CETA’s Investment Court System is Compatible
with EU Law’ (Kluwer Arbitration Blog, April 30th 2019)
http://arbitrationblog.kluwerarbitration.com/2019/04/30/opinion-117-the-cjeu-confirms-that-cetas-investment-court-system-is-compatible-with-eu-law/ accessed 30th September 2019.
III. The Multilateral Investment Court
The following chapter will deal with the Multilateral Investment Court. It will start with an overview of how the system functions as is, what are the problems caused by it in the eyes of the Commission and lastly it will set out how the MIC will solve these issues.
In order to not get lost into the procedural technicalities of ISDS these will not be discussed in-depth in this thesis. However, if one is interested in this subject more in detail; Johan Billiet, International Investment Arbitration: A Practical Handbook may be a good place to start research.41
It is important to note that the aim of ISDS is to put disputes outside of the domestic judicial system. The idea behind this is to protect foreign investors from partial national judges and/or judicial systems that in general do not live up to international rule of law standards. However, prior to starting an ISDS proceeding most BIT’s require amicable settlement procedures and/or the exhaustion of local remedies first.
More traditional forms of ISDS can be found in Model BIT’s of, for example, the US and the Netherlands. The US model BIT stipulates in art. 23 that
‘’In the event of an investment dispute, the claimant and the respondent should initially seek to resolve the dispute through consultation and negotiation, which may include the use of nonbinding, third-party procedures. ‘’42
In a similar fashion the Dutch model BIT stipulates the need for consultations prior to submitting a claim before an arbitrational court in articles 17 and 18.43
It is interesting to note that the Dutch model BIT makes a reference to the Multilateral Investment Court in article 15 which states:
‘’ 1. Upon the entry into force between the Contracting Parties of an international agreement providing for a multilateral investment court applicable to disputes under this Agreement, the relevant provisions set out in this Section shall cease to apply.
2. The Contracting Parties shall, if necessary, adopt transitional arrangements taking into account the legitimate expectations of investors in ongoing disputes under the procedures set out under this Section. ‘’44
41 Johan Billiet, International Investment Arbitration: A Practical Handbook (Maklu Publishers 2016) ch 1.4.2. 42 United States Department of State, ‘’ 2012 U.S. Model Bilateral Investment Treaty’’ [2012], art. 23. 43 Ministerie voor Buitenlandse Zaken, ‘’Netherlands model Investment Agreement’’ [2018], art. 17-18. 44 Ibid, art. 15.
It declares void the Section on dispute settlement in case of the establishment of the MIC if both contracting parties are party to the MIC as well. This shows that the Dutch government is anticipating on the creation of the MIC. However, for now this is just an interesting side note.
The arbitration procedure used differs depending on which set of rules is used. Either ICSID, UNCITRAL or any other set of rules agreed upon by the parties. The more traditional form can again be found in the US model BIT which resembles the ICSID procedure. It stipulates that:
‘’ Unless the disputing parties otherwise agree, the tribunal shall comprise three arbitrators, one arbitrator appointed by each of the disputing parties and the third, who shall be the presiding arbitrator, appointed by agreement of the disputing parties.’’45
It basically boils down to that each party picks one arbitrator and together a presiding arbitrator is chosen. This is one of the facets that leads to concerns regarding ‘’double hatting’’ and/or other concerns regarding impartiality.
More modern forms can be found in for example the envisaged CETA agreement which provided for its own procedure to appoint arbitrators. (although recourse to ICSID and UNCITRAL rules will also be possible.) It is quite an elaborate article, but the main difference can be found in article 8.27(2) which stipulates:
“The CETA Joint Committee shall, upon the entry into force of this Agreement, appoint fifteen Members of the Tribunal. Five of the Members of the Tribunal shall be nationals of a Member State of the European Union, five shall be nationals of Canada and five shall be nationals of third countries.’’46
A roster of fifteen arbitrators shall be created with five EU nationals, five Canadian national and five nationals of third countries. Cases shall be dealt with in compositions of three with one EU national, one Canadian national and one third country national. Furthermore, the article stipulates requirements regarding qualifications, terms and fees. 47
After the appointment of the arbitrators, the arbitrators themselves will decide on jurisdiction on the dispute. If they conclude that they have jurisdiction they will proceed by deciding on the merits of the case, and possibly awarding relief in any form.48 Now that it has been
45 United States Department of State, ‘’ 2012 U.S. Model Bilateral Investment Treaty’’ [2012], art. 27(1). 46 Comprehensive Economic and Trade Agreement (CETA) [2017] L 11/23, art. 8.27(2).
47 Ibid, art. 8.27.
established how traditional ISDS functions in a nutshell, the issues that come with it and how the MIC would solve these can be discussed.
Most of the recurring concerns have to deal with legitimacy and rule of law issues dealing with democracy and transparency. They are grouped into six categories by Stephan Schill as follows. Hereafter it will be discussed how, according to the Commission, the MIC will resolve these issues.
(1) The number of conflicting and inconsistent judgements leads to issues regarding legal certainty. Not only divergence exists under different treaties but also in practically identical cases.
(2) The wide discretion given to arbitrators to interpret broadly construed principles of investment protection creates uncertainty and unpredictability as well. It confers on arbitrators wide powers to expand IIA disciplines.
(3) The host states right to regulate in the public interest is often overlooked. Faced by issues regarding public health or other crises it might be necessary to take certain measures; this is often not taken into account.
(4) The conflict between the governance effects of ISDS that go further that the disputing parties and the private law-based procedures of international arbitration. This
especially pertains to the confidentiality of proceedings, the notion of independence and impartiality of arbitrators and the idea that ISDS is a party-based system, in which non-parties do not have a voice even if affected.
(5) The lack of appeal mechanisms and control of ‘correctness’ of judgements. In IIA’s usually appeal mechanisms do not exists. Because of this, judgments cannot be ‘checked’ by a court of higher instance.
(6) The considerable length of proceedings, and with it high costs, make for a high threshold to start an arbitration procedure. This leads to effectively excluding middle and small enterprises/private entities from judicial remedies.49
It is important to reiterate that most of the objections with the ISDS system find their basis in rule of law conceptions. The ISDS system challenges core constitutional law values such as the principle of democracy, transparency and the rule of law. This is a result of it being based
49 Stephan W. Schill, ‘Reforming Investor-State Dispute Settlement (ISDS): Conceptual Framework and Options
for the Way Forward’ [2015] E15Initiative. Geneva: International Centre for Trade and Sustainable Development (ICTSD) and World Economic Forum, www.e15initiative.org/, 2.
on the existing practice of private-private disputes in commercial arbitration. The fact that the current ISDS system has certain governance effects, that do not exist in commercial
arbitration, is the reason why constitutional law values are deemed to be held in regard. This is of course the result of that an ISDS procedure, by its nature, is aimed at the state and not a private party. 50
Now that the main concerns surrounding the current ISDS system has been established, the solutions proposed by the Commission can be discussed. These consist out of the following:
(1) Regarding the issues surrounding predictability and consistency. These will be solved by establishing a standing mechanism with permanent adjudicators. With the current system, a ruling in one dispute does not necessarily influence another similar dispute due to the ad hoc nature of the tribunals. With a standing mechanism case-law will build up and enhance the predictability of legal interpretation. Consistent case-law will also reduce the amount of cases overall as cases similar to those that have been
rejected will not be brought before court again. In the current system an adventurous claim may still hold.
(2) By building up case-law the discretionary powers of arbitrators will also lessen. Consistent case-law will give guidance to adjudicators. It will provide a stable understanding of provisions.
(3) A standing mechanism will also be in a better position to develop a more balanced approach to other domains of law. For example, the WTO Appellate Body has made a number of declarations on the relationship of WTO law and other fields of
international law. This has helped in clarifying the relationship between the different fields of law. By building case-law these relationships can be clarified more into detail as well.
(4) The concerns regarding legitimacy will be solved by a standing mechanism with full-time adjudicators. By removing the system of appointment by the parties to a system of full-time, long and non-renewable terms the issues of independence and impartiality will be addressed. It will remove the phenomenon of ‘double-hatting’ in which a person is both counsel and arbitrator. It will also remove the practice of repeat appointments, effectively it will remove the link between would be arbitrators and
counsels and the investors and states. The lack of expertise of adjudicators will also be addressed, a concern also raised in light of the current ISDS system. By requiring expertise and by having full-time adjudicators the quality of adjudication will rise. The lack of transparency will also be dealt with as it would be an open court.
(5) The MIC will consist out of a two-tier structure. It will have an appellate tribunal. This appellate tribunal will ensure correctness of judgments by reviewing them and
correcting any legal errors. It ensures a check on what otherwise would be an
independent all-powerful court. This practice is known to most domestic legal systems as well.
(6) The envisaged system will also affect the costs and duration of proceedings in a positive way. It will do this in a number of ways. It will remove the time that is needed to appoint arbitrators, which according to ICSID numbers takes around 6-8 months.51
Secondly, adjudicators would not have an incentive to prolong proceedings, since their renumeration is not based on the amount of time a single case takes. Thirdly, the improved predictability on behalf of the case-law that will be established will also affect the cost and duration as well as the sheer amount of cases which will drop. Re-litigation will not make sense anymore. Fourthly, less time would be spent on challenges since the impartiality and independence of adjudicators is safeguarded better. 52
To sum it up, the creation of a two-tiered institutional tribunal manned by full-time judges would create a more legitimate system. The transparent system would create more
predictability and consistency. By building up consistent case-law the predictability will go up even more and the workload will go down as relitigating will stop. The judges’ impartiality will be safeguarded better as well as their quality. All these consequences will also have positive effects on the cost and duration of proceedings. Which in turn will improve access to justice. However, the question still remains, can the MIC be compatible with EU law? The next and final chapter will answer that question.
51 Gonzalo Flores (Deputy Secretary-General of ICSID), Duration of ICSID proceedings, Presentation,
Inter-sessional Regional Meeting on ISDS Reform, Incheon, Korea, 10 September 2018. http://uncitralrcap.org/wp-content/uploads/2018/11/2018TLF_Part1_Session-3_3.Gonzalo-Flores.pdf.
52European Union, ‘UNCITRAL Working group III submission’ (18th of January 2019)
IV. Analysis on the Compatibility of the ICS/MIC with EU law
The following chapter will entail an analysis of the ICS/MIC in the light of EU law. The ICS in CETA can be seen as a precursor to the MIC, this is why it can be used as an example. The analysis will hold the MIC against the light of leading CJEU opinions on the EU external relations such as, Opinion 1/09, Opinion 2/13 and Opinion 1/17. The main idea behind this question is that the Court has consistently held that:
‘’the founding treaties of the EU, unlike ordinary international treaties, established a new legal order, possessing its own institutions, for the benefit of which the Member States thereof have limited their sovereign rights, in ever wider field, and the subjects of which compromise not only those States but also their nationals’’53
This new legal order sets itself between domestic legal orders and the international legal order. Its autonomy is protected by the so-called guardians of the legal order. The Court explains those as being:
‘’ the guardians of the legal order and the judicial system of the EU are the CJEU and the courts and tribunals of the Member States.’’54
On top of that the court contends that:
‘’The judicial system of the European Union is moreover a complete system of legal remedies and procedures designed to ensure review of the legality of acts of the institutions.’’55
These elements can be summarised as the principle of the autonomy of the EU legal order. It is a principle which cannot be found in the Treaties but has been developed by the Court over the years. This particularity of EU law does not in itself preclude the possibility of the EU subjecting itself to international dispute settlements mechanisms. However, the Court is reluctant to do so. In five out of seven Opinions regarding the question of compatibility the Court has stated that in theory it can be possible but has ruled against the creation of various international courts and tribunals. 56
The principle entails that an international court cannot infringe on the autonomy of the EU’s legal order. A court that frustrates the CJEU’s autonomy can therefore not be compatible with EU law, as stated in Opinion 1/91, if:
53 Opinion 2/13 [2013] Accession of the European Union to the European Convention for the Protection of
Human Rights and Fundamental Freedoms[2013] ECLI:EU:C:2014. para. 157
54 Opinion 1/09 [2009] European Patents Court ECLI:EU:C:2011. para. 66 55 Ibid. para. 70.
56 Laurens Ankersmit, ‘Dispute settlement in the current generation of trade and investment agreements of the
EU: departing from the days of caution and restraint?’ [2018] Schweizerisches Jahrbuch für Europarecht =Annuaire suisse de droit européen, 374.
‘’The agreement is likely adversely to affect the allocation of responsibilities defined in the Treaties and, hence, the autonomy of the Community legal order, respect for which must be assured by the Court of Justice pursuant to Article 164(19 TEU) of the EEC Treaty. This exclusive jurisdiction of the Court of Justice is confirmed by Article 219(344 TFEU) of the EEC Treaty, under which Member States undertake not to submit a dispute concerning the interpretation or application of that treaty to any method of settlement other than those provided for in the Treaty’’57
That paragraph summarises the basic idea of the principle of EU autonomy. However, in order to better analyse this with regard to the MIC, deeper into the case-law has to be delved. After it can be applied to the MIC. Especially consider Opinions 1/09, 2/13 and 1/17 as well as the Achmea case-law will be considered. This because this is the most relevant and recent post-Lisbon case-law.
Opinion 1/09 dealt with the creation of a unified European patent court. Following the European Patent Convention, a treaty to which 38 States, including all the Member States of the EU are party, this Patent Court (PC) was to be created together with a unified European (Community) Patent. The PC would be composed of a court of first instance and a court of appeal.58
In the first part of the Court’s judgment the Court responded to arguments from Member States. The first regarded art. 262 TFEU which is patent specific and therefore not relevant for this thesis. The second argument proposed by the parties was that the PC would infringe on art. 344 TFEU, since the creation of a new court would take disputes out of the judicial system of the EU and art. 344 TFEU prescribes that Member States should refrain from doing so. However, that is exactly the point. Member States cannot submit disputes to a court outside the CJEU.59 The PC and for that matter the MIC as well will not deal with Member
States-Member States disputes but between individuals and individuals-Member States respectively. Hereafter, the Court reiterates the importance of its unique legal order and expands this to the courts of the Member States. It states that the national courts are the guardians of the Treaties together with the CJEU.60 In a later part this was used to put focus
on the preliminary reference procedure as a guiding principle ensuring the effectiveness of EU law throughout the Union.61 In paragraph 74 the Court concedes that:
57 Opinion 1/91[1991] EEA Court ECLI:EU:C:1991:490, para. 35.
58 Opinion 1/09 [2009] European Patents Court ECLI:EU:C:2011 paras. 3-8. 59 Ibid, 60-64.
60 Ibid, 65-67. 61 Ibid, 80-84.
‘’an international agreement providing for the creation of a court responsible for the
interpretation of its provisions, the Court has, it is true, held that such an agreement is not, in principle, incompatible with European Union law. The competence of the European Union in the field of international relations and its capacity to conclude international agreements necessarily entail the power to submit itself to the decisions of a court which is created or designated by such agreements as regards the interpretation and application of their provisions.’’62
This is in line with what the Court has held in previous Opinions. However, in the end it deemed that the PC would be called upon to interpret not only the provisions of the
international agreement that would establish it but also Community legislation.63 The fact that
a preliminary reference procedure would not be enforceable on the PC rendered it insufficient to safeguard the autonomy of EU law.64
What can be gathered from this Opinion for the purpose of this paper? The fact that this Opinion regards the ‘’complete’’ system of national and EU courts to be protected under the principle of autonomy and that Member States could not deprive their own courts of their function as ordinary courts of the EU, might have consequences for the MIC. As for regular arbitration this might have consequences as to its permissibility. Since the aim of arbitration is to effectively put the dispute outside of the national judiciary.65 In the Nordsee case it was
made clear that a preliminary reference cannot be made by such an arbitrational tribunal since it does not fall under the definition set out in art. 267 TFEU.66 However, would this also apply
to the MIC? The difference is that in the Nordsee case the dispute was internal, with the MIC it will be between a foreign investor and a state. However, the MIC as well can never fall under the definition of a court of tribunal of a Member State. It is an international court and can as such not make use of the preliminary reference procedure in order to ensure
compliance with the autonomy of EU law. However, a less strict reading could recognise the difference between a court which deprives the Member States courts entirely from their jurisdiction, such as the PC, or one where the parties may choose between pursuing the case in a national court or the MIC.67 In the latter situation the MIC in itself does not take away
jurisdiction from the national courts, it only offers an option to proceed via the MIC.
62 Ibid, 74. 63 Ibid, 78. 64 Ibid, 86-87.
65 Tobias Lock, ‘Taking national courts more seriously? Comment on Opinion 1/09’ [2011] E.L. Rev. 2011, 36(4),
581-582.
66 Case 102/81 Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern AG &
Co. KG and Reederei Friedrich Busse Hochseefischerei Nordstern AG & Co. KG [1982] ECLI:EU:C:1982:107.
67 Tobias Lock, ‘Taking national courts more seriously? Comment on Opinion 1/09’ [2011] E.L. Rev. 2011, 36(4),
Opinion 2/13 famously dealt with the EU’s accession to the European Court of Human Rights (ECHR). The Court, after having re-stated preliminary its unique characteristics and new legal order, found five reasons as to why the EU’s accessions could not take place. 1. It undermined the Courts autonomy, 2. Allowed for a second dispute settlement system, 3. Issues with the co-respondent mechanism, 4. The prior involvement system and 5. ECHR would have jurisdiction on the CFSP.
Regarding the first objection, the Court starts by re-stating that in principle the creation of an outside court is not incompatible with EU law. This provided that said court would not infringe or frustrate the EU’s internal powers without sufficient safeguards as to the essential character of EU law. The fact that judgments by the ECHR would be binding on the EU and that no preliminary reference procedure was made possible made the agreement liable to adversely affect the autonomy of EU law.68 The second objection regarded art. 344 TFEU
which prohibits Member States from subjecting disputes to any courts outside of the CJEU.69
The third objection related to the foreseen co-respondent mechanism. It was concluded that this mechanism would grant the ECHR the power to decide if the Member State or the EU would be the addressee of proceedings. This infringes on the autonomy of EU law as it is for the CJEU to decide on matters of accountability.70 The fourth objection considered the prior
involvement system to be incompatible with EU law. Surprisingly this system was instated in order to comply with EU law. However, according to the CJEU it did not went far enough. It entailed that the CJEU could decide before a case went to the ECHR if it had already ruled on it. It did not entail that the CJEU could give a binding interpretation on EU secondary law and this would therefore be up to the ECHR. This affects the competences of the EU adversely and was therefore considered to be incompatible.71 The final objection related to CFSP
jurisdiction. The Court stated that it itself has limited jurisdiction on CFSP matters and that this constitutes a specific characteristic of the EU. Giving jurisdiction on CFSP matters to the ECHR would go against these specific characteristics of the EU and is therefore not
compatible with EU law.72
68 Opinion 2/13 [2013] Accession of the European Union to the European Convention for the Protection of
Human Rights and Fundamental Freedoms [2013] ECLI:EU:C:2014, paras. 179-200.
69 Ibid, 201-208. 70 Ibid, 215-235. 71 Ibid, 236-248. 72 Ibid, 249-257.
How do these objections relate to the ICS/MIC? In order to deal with the first objection, it is important to limit the jurisdiction of the MIC. It has to be limited to only include IIA’s concerned, and not EU provisions. An example of this can be found in Chapter 33, article 14.15 of the CETA agreement. It provides that:
‘’ Nothing in this Agreement shall be construed as conferring rights or imposing obligations on persons other than those created between the Parties under public international law, nor as permitting this Agreement to be directly involved in the domestic legal systems of the Parties. No Party may provide a right of action under its domestic law against the other Party on the ground that a measure of the other Party is inconsistent with this Agreement.’’73
This provision effectively prevents the agreement from becoming integrated into EU law and will therefore not be binding within the EU legal order on EU institutions.74
The second objection, regarding art. 344 TFEU which prohibits Member States from submitting disputes to courts outside of the EU, has already been discussed in the section regarding opinion 1/09. Art. 344 TFEU will not be an issue for the creation of the MIC as it only prevents disputes between Member States from being submitted to courts outside of the EU. The MIC will deal with disputes between private parties and states.
The third objection, regarding the allocation of responsibility, has been resolved by a
regulation of the EU. Regulation No 912/2014 manages the financial responsibility linked to ISDS tribunals established by agreements to which the Union is a party.75 EU secondary
legislation has taken care of this issue and will therefore not be a question for the MIC. Consequently, this regulation falls under the jurisdiction of the CJEU.
The fourth objection, the one considering prior involvement of the EU may not be an issue. A strict approach by the Court may require some form of preliminary reference procedure in the MIC. However, this might not be necessary. As the ISDS fundamentally reviews measures, either EU or Member State, in light of the IIA concerned. It does not review compliancy with EU law as this is not relevant.76 For example, the ICS will review if a measure that affected an
73 Comprehensive Economic and Trade Agreement (CETA) [2017] L 11/23, Ch. 33 art. 14.15.
74 Stephan W. Schill, ‘Editorial: Opinion 2/13 -The End for Dispute Settlement in EU Trade and Investment
Agreements?’ [2015] The Journal of World Investment & Trade, 16(3), https://doi.org/10.1163/22119000- 01603000, 385.
75 Regulation (EU) 912/2014 Financial responsibility [2014] L 257/121.
76 Stephan W. Schill, ‘Editorial: Opinion 2/13 -The End for Dispute Settlement in EU Trade and Investment
Agreements?’ [2015] The Journal of World Investment & Trade, 16(3), https://doi.org/10.1163/22119000- 01603000, 386-387.
investor is compatible with the CETA agreement and will not interpret EU law as such. Moreover, in the CETA agreement, after which the MIC presumably will be modelled after, it is provided that:
‘’ The Tribunal shall not have jurisdiction to determine the legality of a measure, alleged to constitute a breach of this Agreement, under the domestic law of the disputing Party. For greater certainty, in determining the consistency of a measure with this Agreement, the Tribunal may consider, as appropriate, the domestic law of the disputing Party as a matter of fact. In doing so, the Tribunal shall follow the prevailing interpretation given to the domestic law by the courts or authorities of that Party and any meaning given to domestic law by the Tribunal shall not be binding upon the courts or the authorities of that Party’’77
This ensures that the Tribunal will not interpret EU (and/or, in the case of CETA, Canadian) law but will use the prevailing interpretation given by the CJEU (and/or Canadian supreme court). This ensures that the CJEU will remain the authority on EU law, and even if the ICS would give any meaning to domestic law this would not be binding on the courts and
institutions of that party. This will be explained more in detail in the section on opinion 1/17.
The final concern dealt with jurisdiction on CFSP matters. CFSP measures could fall under ISDS proceedings if they affect investors adversely. The Court stated that: ‘’jurisdiction to carry out a judicial review of acts, actions or omissions on the part of the EU … cannot be conferred exclusively on an international court which is outside the institutional and judicial framework of the EU.’’78 This would seem problematic for ISDS in CFSP matters. However,
it is hard to think of situations in which this would be an issue. In any event, the MIC would not be able to apply EU law. On top of that the MIC will only be competent to apply treaty provisions which are excluded for domestic courts to apply since direct effect is not given to the newer generation of IIA’s.79 A still open question is how this will relate to investments
made in the field of CSDP, which of course is a part of CFSP. Investments made in the field of defence will still fall under the definition of investments and therefore fall under the relative IIA concluded. It is only where measures concluded by the EU under the umbrella of CFSP that, in addition negatively affect these investments the jurisdiction of the MIC over these measures becomes an issue. A strict reading of opinion 2/13 will dictate that jurisdiction
77 Comprehensive Economic and Trade Agreement (CETA) [2017] L 11/23, Ch. 8 art. 8.31(2).
78 Opinion 2/13 [2013] Accession of the European Union to the European Convention for the Protection of
Human Rights and Fundamental Freedoms[2013] ECLI:EU:C:2014, para, 256.
79 Stephan W. Schill, ‘Editorial: Opinion 2/13 -The End for Dispute Settlement in EU Trade and Investment
Agreements?’ [2015] The Journal of World Investment & Trade, 16(3), https://doi.org/10.1163/22119000- 01603000, 387.
of this field will need to be excluded for the MIC. However, as mentioned above the MIC will not review EU law itself but only in light of the IIA’s concluded. It will therefore never have jurisdiction on CFSP measures itself.
The following section will discuss the Achmea case and its effects. After which opinion 1/17 will be considered which is the most recent development on this subject. The Achmea case (C-284/16) dealt with the validity of arbitration clauses in an intra-EU BIT between the Netherlands and Slovakia with EU law.
The judgment begins, as per usual, by recalling the principle of autonomy of EU law. On the basis of this principle Member States are obliged to ensure uniform and effective application of EU law. One of the fundamental instruments to ensure this is the art.267 TFEU
procedure.80 After which the Court construes that the arbitral tribunal may in fact be called
upon to interpret or apply EU law.81 The next step for the Court is to assess if the arbitral
tribunal can be constituted as ‘a court or tribunal of a Member State,’ which it concludes it is not. It is therefore not be able to ask for a preliminary reference procedure under art. 267 TFEU.82 As a last step the Court examines if the arbitral award is reviewable by a court of a
Member State and as such can be ensured of compatibility with EU law. It concludes that this is limited and therefore not in compliance with EU law.83 In paragraph 58 and 59 the Court
argues that the arbitration clause of the intra-EU BIT has adverse effects on the principles of mutual trust between Member States, the principle of sincere cooperation as well as the autonomy of EU law.
The ISDS under scrutiny in the Achmea case-law differs from the foreseen MIC as well as the existing ICS. For those reasons the Achmea case-law is of lesser relevance. First of all, the Achmea case-law dealt with an intra-EU BIT. Here the principle of mutual trust between Member States and the principle of sincere cooperation are of relevance. The difference lies in that this BIT was concluded between Member States, and the foreseen MIC will be concluded by the Member States and the EU as one contracting party and third countries as the other. Therefore, situation in inherently different.
Moreover, as discussed in the previous chapter the ICS/MIC system differs greatly from ISDS as it meets higher rule of law standards. The ISDS system in this case represents the old ad
80 Case C-284/16 Slovak Republic v Achmea [2018] ECLI:EU:C:2018:158. paras 32-38. 81 Ibid, 39-42.
82 Ibid, 43-49. 83 Ibid, 50-56.
hoc system. In response to the concerns that the MIC would effectively entail the removal of disputes from the preliminary ruling procedure and as such would interfere with the
effectiveness of EU law. This is not necessarily the case as investors may choose whether to proceed via the national route or the MIC. As well as the remedy proposed by chapter 8 art. 8.31 in CETA which provides that the prevailing EU interpretation should be leading, and that any interpretation given by the Tribunal will not be binding on the EU. However, for the response of the Court to these remedies opinion 1/17 should be looked at, as this opinion dealt exactly with these questions.
Opinion 1/17 can be seen as the culmination of all the foregoing case-law on this subject. After threats of the Walloon government to not ratify CETA, the Belgium federal government struck a political deal to ask for an Opinion of the Court. The Belgian government asked three main questions as to the validity of the ICS as stated in CETA. The first question dealt with the compatibility with regard to the principle of autonomy, the second with regard to the principle of equal treatment and effectiveness and the last with regard to the right to an independent tribunal.
Regarding the first question, the answer was divided into two parts. In the first place the Court confirmed that the judicial system of the EU cannot be undermined, as this aims to ensure uniformity of EU law. The safeguard provided by CETA that it would not confer on the tribunals ‘’any power to interpret or apply EU law..’’ and the fact that the tribunals would only apply the agreement and would not have jurisdiction to apply domestic laws of the parties, was found sufficient by the Court.84 This differs from the agreement under scrutiny in
Opinion 1/09 since the Patent Court was outside the judicial system of the EU but had the competence to interpret and apply future EU secondary law. It is also different from the BIT in the Achmea case. As explained above, there is no mutual trust in relations between Member States and Non-EU states, therefore the right to an effective remedy before an independent tribunal is not guaranteed.85 The second part of the answer of the Court
elaborates on the scope of the principle of autonomy of the Union. Previous case-law such as Opinion 1/00 already hinted at this. It stated in paragraph 21 that an international agreement cannot ‘alter the essential character’’ of the power of each of the Union’s institutions. Opinion
84 Opinion 1/17 [2017] CETA ECLI:EU:C:2019, paras 120-136.
85 Speech by K. Lenaerts, ‘Modernising trade whilst safeguarding the EU constitutional framework: an insight
1/17 elaborates on this. From paragraph 137 on the Court explored if the envisaged tribunals would have competences as to prevent the EU institutions ‘from operating in accordance with the EU constitutional framework.’ What this means is that, although the CETA tribunal would not be applying EU law, they would have the competence to decide if an EU measure violates the investment protection provisions set out in CETA. It can therefore happen that the
Tribunal has to weigh the provisions in CETA against certain public interest aspects. After which it has the power to attribute pecuniary compensations. This could lead to a risk that the EU should lower its level of protection in order to not be charged with damages consequently. This could undermine the democratic legislative process and interfere with the political institutions of the EU and their role. However, enough safeguards were found to be in place. Each party’s right to regulate was sufficiently safeguarded.86
With regard to the question of the principle of equal treatment, the Court found there to be no violation of EU law. The difference in treatment referred to in the request for an opinion was derived from the fact that EU investors investing in the EU cannot rely on the CETA
provisions as opposed to Canadian investors investing in the EU who can. However, these are not comparable situations. As the Canadian investors operate in the capacity of a foreign investor investing in the EU, a comparable situation is an EU investor operating in Canada and he could in fact rely on the CETA provisions. This leads to that there is no violation of the principle of equal treatment.87 On the compatibility with the principle of effectiveness of
EU law the Court was rather short. The principle was raised out of fear that the CETA ICS would render the effect of EU competition law useless. The idea existed that fines given by the EU’s competition authorities could lead to proceedings under CETA. However, the Court argued that such an award is only possible if the competition rules were applied incorrectly. If that is the case an investor would also be able to turn to the legal remedies provided in EU law itself to seek for annulment. It would therefore be no different than usual and does not frustrate the effectiveness of EU law.88
The last part of the judgment reviewed the CETA tribunal in light of the right of access to an independent tribunal, which is laid down in art. 47 Charter of Fundamental Rights (CFR). The
86 Speech by K. Lenaerts, ‘Modernising trade whilst safeguarding the EU constitutional
framework: an insight into the balanced approach of Opinion 1/17,’ [2019], 9-11.
87 Opinion 1/17 [2017] CETA ECLI:EU:C:2019, paras 179-186. 88 Ibid, paras 185-186.
Court applied this article directly to the system envisaged in CETA and found no issue with it.89 While analysing the requirement of accessibility, the Court does recognise that
proceedings would ‘be a costly procedure.’ This may lead to natural persons and/or small and medium enterprises to refrain from starting proceedings, making the ICS less accessible to them. However, the Court points to Statement No. 36 in which the Union commits itself to undertake additional measures in order to reduce the financial burden for natural persons and small and medium enterprises. The Court states that compatibility with art. 47 CFR is
conditional upon the adoption of these measures.90 After this the Court assesses the
requirement of independence in the ICS in CETA. The Court reviews various aspects of the ICS system. It looks at how renumeration is organised, the role of the CETA Joint Committee in this (the Committee is able to change the level of renumeration) as well as its role in adopting interpretations of the CETA Agreement. It concludes that this is neither illegitimate nor unusual.91 The Court furthermore reviews the ethical aspects and the measures taken in
order to ensure distance between adjudicators vis-a-vis parties and governments. It concludes that sufficient safeguards are in place in order to ensure the independence of the Tribunal.92
This may not come as a surprise since the idea of the ICS system in CETA is to improve the rule of law conditions in international investment arbitration. Independence of adjudicators falls under the conditions up for improvement.
With no issues found the Court deemed the ICS system envisaged in CETA to be compatible with EU law. This is a major breakthrough for the MIC as the ICS can be considered as its precursor. As found in the Dutch model BIT and as can also be found in art. 8.29 of the CETA Agreement the existing ICS system will be transitioned into the Multilateral system when that Court is established.93
As the MIC is still in early stages of negotiations no draft treaty text exists yet. Therefore, it is not possible to make any conclusions on the basis of blackletter MIC text. However, it is safe to assume it will be based on the ICS as envisaged in CETA. The only difference being is that it will be concluded with multiple states and not between the EU and just one third country. A
89 Ibid, paras 189-204. 90 Ibid, paras 205-222. 91 Ibid, paras 223-233. 92 Ibid, paras 234-244.
93 See Dutch Model BIT mentioned in Chapter III, Comprehensive Economic and Trade Agreement (CETA)
