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    Archive for June, 2017

    Opinion 2/15 and the future of mixity and ISDS

    By Ian Caswell, on 5 June 2017

    Author: Dr Laurens Ankersmit

    This blog post was originally posted to European Law Blog and can be read online at https://europeanlawblog.eu/2017/05/18/opinion-215-and-the-future-of-mixity-and-isds/

    Opinion 2/15 on the EU’s powers to conclude the EU-Singapore Free Trade Agreement (EUSFTA) delivered Tuesday received considerable attention from the press. This comes as no surprise as the Court’s Opinion has consequences for future EU trade deals such as CETA and potentially a future UK-EU FTA. Despite the fact that the ECJ concluded that the agreement should be concluded jointly with the Member States, the Financial Times jubilantly claimed victory for the European Union, belittling Wallonia in the process. This victory claim calls for three initial comments as there are aspects of the Opinion that might merit a different conclusion.

    CC thetaxhaven https://www.flickr.com/photos/83532250@N06/7651028854

     

     

     

     

     

     

     

     

    Did the Court just discard the theory of facultative mixity?

    In its Opinion, the Court found that the EU had exclusive competence over most of the EUSFTA and shared competence over non-direct investment and Investor-State Dispute Settlement (ISDS). Despite the fact that the EU thus enjoyed competence to conclude the EUSFTA, the ECJ came to the conclusion that the agreement required the involvement of the Member States (see paras. 244 and 292).

    Unfortunately the Court did not explain why Member States needed to be involved in an area of shared competence resulting in the tentative conclusion that the theory of facultative mixity has been rejected or at least affected by the Court. This theory, developed by Judge Allan Rosas, holds that there are two forms of mixity: obligatory mixity and facultative mixity. Obligatory mixity arises where a mixed agreement is required because the EU has exclusive competence over one area of an agreement, but no competence at all over another area. The EU therefore naturally needs the Member States to fill in the remaining areas of competence. Facultative mixity, on the other hand, arises when the agreement falls within shared competence of the EU and the Member States. There is then a political choice as to who exercises this competence, the EU or the Member States. To my knowledge, the choice is almost always made to resort to a mixed agreement, not least to ensure involvement of national parliaments in the ratification process.

    If the Court did reject the theory of facultative mixity – and it by all means it has the looks of it – this would have significant consequences for the EU’s ability to conclude international agreements in areas of shared competence. Even if the EU and the Member States elect mixity almost every single time, there is still an element of political discretion involved. By contrast, it seems now that in all areas of shared competence, such as environmental protection, Member States would as a matter of law need to be involved in the ratification process. It appears therefore that even if the EU has shared competence, the EU is prevented from acting in at least some areas of an agreement. This is anything but a victory for EU powers vis-à-vis that of the Member States.

    Investment a key (and controversial) aspect of current EU trade policy

    Secondly, and perhaps more concretely, the ECJ came to the conclusion that a key and controversial aspect of EU current EU trade policy is not exclusive. There was never much doubt that large parts of the EUSFTA fell within EU exclusive competence, but one area that was the source of considerable legal contention was that of investment. While article 207 TFEU makes clear that foreign direct investment is EU exclusive competence, the question was whether non-direct investment and ISDS fell within EU exclusive competence as well.

    Here the Commission suffered a major defeat, in particular in relation to ISDS. The ECJ rightly dispatched with the rather outlandish argument that since Treaty provisions on free movement of capital would be affected by the EUSFTA, the EU enjoyed exclusive competence pursuant article 3 (2) TFEU (see paras. 229-238). Perhaps even more significantly, the Court found that ISDS was shared competence because it ‘removes disputes from the jurisdiction of the courts of the Member States’ (para. 292).

    For current EU trade policy the consequences of the judgment are that future FTAs will remain mixed, requiring ratification of the Member States. It is perhaps worth recalling here that Wallonia’s contention with current FTA’s first and foremost have to do with investment and ISDS/ICS, and thus the confirmation of it’s legal right to be involved in this area of policy is a clear victory for Walloon prime minister and professor Paul Magnette. This pinpoints to the opposite of the claims of the FT. If indeed ISDS is removed from EU trade agreements that would also be a victory for the Walloons.

    The million euro question on compatibility of ISDS/ICS with the Treaties

    Lastly, the Court dispatched with the idea that if it would not rule on compatibility of ISDS with the Treaties, we can all assume that the Court thinks that ISDS is compatible with the Treaties. As I wrote earlier, chief CETA negotiator Mauro Pettriccione in a hearing before the European Parliament has stated (at 12:30:30) “if the Court is examining the substance of the request in Singapore who is competent regarding ISDS, the Court must be thinking ISDS is compatible with the EU Treaty otherwise it would have stopped the proceeding, and have said this is incompatible with the Treaty, we are not going to examine the competence, because nobody is competent to do this.” In at least one event I attended, I have heard an MEP repeat this assertion in defence of voting against a request for an Opinion on the compatibility of the Investment Court System (ICS) in CETA with the Treaties.

    Obviously these statements are questionable as the Commission itself had limited the scope of the request to only the question of competence, not compatibility. Nonetheless, the Court similar to the Advocate General felt compelled to explicitly state this in the Opinion. It held ‘this opinion of the Court relates only to the nature of the competence of the European Union to sign and conclude the envisaged agreement. It is entirely without prejudice to the question whether the content of the agreement’s provisions is compatible with EU law.’ (para. 30) The Court, moreover, repeated this point later on in paras. 290-293, notably pointing out that ISDS affects the powers of the courts of the Member States.

    This is an important statement of the Court and one that is very relevant for the question of compatibility (see here for a more elaborate discussion). The courts of the Member States are, together with the CJEU, the ‘guardians’ of the EU legal order who play a key role in the uniform application and interpretation of EU law through the preliminary reference procedure, the ‘keystone’ of the EU’s judicial system. It is no surprise therefore that so many judges associations, including the European Association of Judges and the German Association of Judges, have objected to the Investment Court System.

    By acknowledging competence of the Member States in the area of ISDS and by making this strong statements on how ISDS affects the powers of European judges, the Opinion clears the path for a Belgian or Slovenian request for an Opinion on the compatibility of ICS with the Treaties, something that the Commission has been keen to avoid in the past years. In the case of Belgium, it now seems that a request for an Opinion is imminent.

     


    Dr Laurens Ankersmit is a lawyer at ClientEarth and lectures on EU international relations law at the Brussels School of International Studies of the University of Kent.

    © 2017, Laurens Ankersmit. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (CC-BY) 4.0 https://creativecommons.org/ licenses/by/4.0/, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

    Attribution 4.0 International (CC BY 4.0)

    Trade and Sustainable Development: Opinion 2/15 and the EU’s Foreign Policy Objectives

    By Ian Caswell, on 1 June 2017

    Author: Dr Joris Larik

    In the long-awaited Opinion 2/15, the Court of Justice of the EU (CJEU) declared that “the objective of sustainable development henceforth forms an integral part of the common commercial policy” (CCP) (para. 147). Next to the Court’s findings on other elements of the CCP or the state of EU legislation capable of enhancing the Union’s powers to conclude international agreements, this is a salient feature of the Opinion, which illuminates the legal significance of the EU’s foreign policy objectives in the post-Lisbon Treaties.

    At the heart of the Opinion was the question whether the EU-Singapore Free Trade Agreement (EUSFTA) could be concluded by the Union alone, or only together with the Member States – making it a so-called “mixed agreement”. In essence, Opinion 2/15 provides an answer to a “who” question by looking mostly at the “what”: Which actors are needed to conclude the agreement, in view of the subject matter covered and how it relates to scope of EU competences, which are either conferred directly by the Treaties or implied through internal EU rules. However, the discussion on the EUSFTA’s chapter on sustainable development sheds light on the arguably more fundamental question of the “why”. To which ends is the EU pursuing its external trade policy – or even its external relations more broadly – and where does that leave the Member States?

     

    The EU’s constitutional foreign policy objectives post-Lisbon

    As Kleimann and Kübek aptly summarize, “Opinion 2/15 confirms the tectonic shifts of competence that the Lisbon Treaty has brought about in the area of EU Common Commercial Policy.” These shifts brought about by the Lisbon reform not only concerned the scope of the CCP, but also its goals. Pre-Lisbon, the objectives of the CCP were strictly trade-oriented (see Art. 131 TEC). Moreover, an overarching set of objectives of the EU in its external relations did not exist, merely a rather vague reference regarding the development of “its identity on the international scene” (Art. 2(1) pre-Lisbon TEU), which was then still an entity distinct from the European Community.

    With the Lisbon reform, the EU Treaties have for the first time received a comprehensive set of objectives for the Union’s external relations. Art. 3(5) TEU and Art. 21 TEU contain the overall objectives of external action, which are applicable to all policy areas. In addition, some policies (but, curiously, not the Common Foreign and Security Policy (CFSP)) contain a set of area-specific objectives. In the case of the CCP, these can be found in Art. 206 TFEU, which states that “the Union shall contribute, in the common interest, to the harmonious development of world trade, the progressive abolition of restrictions on international trade and on foreign direct investment, and the lowering of customs and other barriers.” This formulation is largely unchanged from before Lisbon and indeed the 1957 Rome Treaty (Art. 110), with the notable change being the inclusion of the term “foreign direct investment”.

    The post-Lisbon Treaties do not simply juxtapose these objectives, but closely link them together. Art. 205 TFEU stresses that the “Union’s action on the international scene” in the different policies included in the TFEU “shall be guided by the principles, pursue the objectives and be conducted in accordance with the general provisions laid down in” Art. 21 of the TEU. This same idea is reiterated in Art. 207(1) TFEU with specific regard to the CCP.

    Immediately after the Lisbon Treaty’s entry into force in 2009, it was not clear what the legal relevance of these objectives would be. These were certainly not hard legal obligations that could be invoked in court by the Member States or the institutions – let alone individuals. Moreover, they are not to be conflated anymore with norms establishing the competences of the EU, given that the very broad nature of these objectives would render the idea of conferred powers nugatory.

    In the past years, however, it has become clearer that these objectives play a role at in interpreting the Treaties, in two ways in particular. Firstly, the objective of contributing to “the strict observance and development of international law” has been used by the CJEU to establish that the EU is bound by customary international law, which was previously only posited in the case law of the court with no “hook” in the primary law (see Case C 366/10 Air Transport Association of America). Secondly, effective pursuit of these objectives has been invoked by the institutions in the context of delimiting different areas of EU competence from each other, especially in disputes about the correct legal basis. Hence, while the objectives cannot create competences on their own, they serve to shape their outer contours and help to allocate them to particular policies. For instance, the Council invoked the pursuit of anti-terrorism as a contribution to international security to, successfully, make the argument that targeted sanctions against persons associated with Al Qaeda fell under the CFSP rather than the Area of Freedom Security and Justice (AFSJ) (assuming also that international security still constitutes a quintessentially “CFSP objective”, see, Case C-130/10 Parliament v Council (Al-Qaeda Sanctions)).

     

    Opinion 2/15: Sustainable development as an “integral part” of the CCP

    In Opinion 2/15, the EU’s foreign policy objectives played a role in the second category mentioned above, i.e. delimitation between different competence areas, in casu whether the chapter of the EUSFTA concerning sustainable development, which deals with environmental and labour standards, falls within the CCP, or rather within environmental and social policy, respectively.

    CJEU came to disagree on this point markedly with the Advocate General. The latter had argued in her opinion that “Articles 3(5) and 21 TEU […] are not relevant to resolving the issue of competence” and “cannot affect the scope of the common commercial policy laid down in Article 207 TFEU” (para. 495), concluding that sustainable development chapter still fell under the competences shared with the Member States.

    By contrast, the CJEU reiterated that as far as the CCP is concerned, “the FEU Treaty differs appreciably from the EC Treaty previously in force, in that it includes new aspects of contemporary international trade in that policy” and that the “extension of the field of the common commercial policy by the FEU Treaty constitutes a significant development of primary EU law” (para. 141). These changes also concern the content and organization of the EU’s foreign policy objectives as codified in the Treaties. The Court made specific references to the provisions linking the CCP-specific objectives to those on the EU’s external action in general, noting that these, “as is stated in Art. 21(2)(f) TEU, relate inter alia to sustainable development linked to preservation and improvement of the quality of the environment and the sustainable management of global natural resources” (para. 142). According to the Court, in view of this tapestry of interlinked goals, the “obligation on the European Union to integrate those objectives and principles into the conduct of its common commercial policy is apparent” (para. 143). Hence, it viewed “the objective of sustainable development” from now on “as an integral part of the common commercial policy” (para. 147).

    As with the other areas of the agreement, the Court then applied its “specific link” and “direct and immediate effects on trade test”. The Court concluded that both were present here, seeing, among other reasons, that the sustainable development chapter of the EUSFTA is aimed at avoiding trade promotion “by reducing the levels of social and environmental protection […] below the standards laid down by international commitments” and at prohibiting the invocation of such standards “in a protectionist manner” (para. 158).

     

    Where does the CCP end?

    Before concluding that the sustainable development chapter indeed falls under the EU’s a priori exclusive competence of the CCP, the CJEU added some remarks on the limits of the CCP. Without any limits, the CCP would indeed be able to swallow up large parts of other policy areas, which are not a priori exclusive in nature. The Court thus noted that the CCP competence “cannot be exercised in order to regulate the levels of social and environmental protection in the Parties’ respective territory” (para. 164). It stressed, moreover, that the CCP “does not prevail over these other provisions” on non-CCP areas (para. 164), recalling also Art. 207(6) TFEU.

    Nonetheless, Opinion 2/15 leaves the impression that as soon as a particular external act of the Union can be framed in the pursuit of its foreign policy objectives, there is a lot of leeway in choosing the policy through which to pursue it – at least for the non-sector specific objectives in Arts. 3(5) and 21 TEU. This has important implications, as it means that using shared competences, and with it the possibility of mixity, can be avoided as long as the core of other, non-exclusive policy areas is not touched upon, in this case direct and unequivocal social and environmental regulation.

    Looking to the future, it will be interesting to see whether this flexibility applies “only” between the different TFEU policies, or also to the pursuit of CFSP-related objectives, especially since that policy does not have a “core” in the sense of regulation, seeing that the adoption of legislative acts is excluded (Art. 24(1)(2) TEU). In any event, in the post-Lisbon world, the goals of EU external action are clearly spelled out, and the paths that lead to them are many.

     


    Dr Joris Larik is Assistant Professor of Comparative, EU and International Law at Leiden University, The Netherlands, and Senior Researcher at The Hague Institute for Global Justice.

    © 2017, Joris Larik. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (CC-BY) 4.0 https://creativecommons.org/ licenses/by/4.0/, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

    Attribution 4.0 International (CC BY 4.0)