Death Sentence for Autonomous Investment Protection Tribunals

Daniel Thym
, Chair of Public, European and
International Law, University of Konstanz

Public debates are short-lived: the
international media was thrilled by the regional parliament of Wallonia
threatening to block the CETA Agreement with Canada. At the moment, free trade
is more popular as a result of Donald Trump’s opposition, since few Europeans
feel comfortable promoting a similar approach as the US president. We should be
careful, however, not to be forget underlying structural issues besides the
headline news about punitive tariffs on European steel or American orange
juice. One such structural challenge is independent investment protection
tribunals, which are a bone of contention during the CETA and TTIP debate. In
that respect, the recent
Achmea judgment
by the ECJ may
have more far-reaching repercussions as the public debate has recognised so

This judgment concerned a Slovak-Dutch
Agreement on investment protection, invoked to request a tribunal to rule on
compensation for a Slovakian government decision to change health insurance law.
The ECJ found that the bilateral investment treaty was in violation of EU law because
the tribunal could be called upon to interpet EU law in a dispute between
investors and States, but its interpretation could not be effectively challenged
via the court process, meaning that the ECJ’s role as the final arbiter of EU
law was infringed.

While the (German) media initially focused on
implications for intra-European investment protection, such as the Slovak-Dutch
Agreement, it is too simple to assume, as the Frankfurter
did, that agreements concluded by the EU with a third state
follow a different script, since the EU institutions gave their consent to the
investment protection regime. Such an interpretation ignores the level of
abstraction of the ECJ’s argument, which appears to be a position of principle,
thereby closing a gap in its argument on the EU-Singapore Free Trade Agreement
when judges in Luxembourg deemed it ‘not (yet) appropriate to examine whether
the dispute settlement regime … of the envisaged agreement fulfils the criteria
set out (in previous case law), in particular the criterion relating to the
autonomy of EU law” (para
). They now provide an answer to the question and it is, not for the
first time, a celebration of autonomy.

as a Serial Offender: Control of Third State Agreements

For the European Union, the law is more than
an instrument to realise political objectives; it is the foundation of its
existence and a precondition for its continued success. That is why deficits in
the respect for the rule of law are so sensitive for the EU, with regard to
monetary union and the asylum
not differently than regarding
. When integration through law stutters, European integration is in
trouble – and it does not come as a surprise, therefore, that the ECJ defends
the effective application of supranational rules vigorously. To do so may
promote its institutional self-interest, if judicial ‘competitors’ are being
constrained, but the defence of autonomy is more than judicial egotism: it
protects the legal foundations of a supranational community based on the rule
of law.
From a doctrinal perspective, the judicial
control of third country agreements is based on the assumption, confirmed by Article
218(11) TFEU
, that primary EU law has a higher rank than international agreements
from the perspective of the supranational EU legal order. That conclusion
extends to the UN Security Council in relation to which the ECJ famously found
that ‘international agreement cannot have the effect of prejudicing the
constitutional principles of the (EU) Treaty’ (para
). Ideally, such incompatibility is identified on the occasion of an
opinion before an agreement is being ratified, but judges in Luxembourg do not
hesitate to enforce the primacy of the EU Treaties after an agreement entered
into force.

of the Autonomy of Union Law

The concept of ‘autonomy’ is a catch-all
phrase intended to summarise core features of the supranational EU legal order relating
‘to the constitutional structure of the EU and the very nature of that law’ and
including basic features, such as direct effect, primacy and a judicial system
intended to ensure consistency and uniformity in the interpretation of EU law
via the ECJ and national courts (paras 33-37). That may sound abstract, but it
should be read against the background of the cardinal significance of the law
for the process of EU integration mentioned before. When speaking of ‘autonomy’,
judges in Luxembourg are not concerned with the doctrinal small print: autonomy
is a question of principle that leaves little room for compromise.

Closer inspection demonstrates that not only
the general principles of the Achmea
judgment are based on the rigorous defence of autonomy. The position of the ECJ
on the bilateral Slovak-Dutch investment treaty (BIT) are similarly general in
nature (paras 39-59), thereby indicating that the ruling is more than a
decision on intra-European investment protection schemes. Its reasoning can be
extended to agreements with third states as a matter of principle, also
considering that the ECJ refers to several previous rulings that had considered
such treaties to be in violation of the EU Treaties. Indeed, it seems to me
that the arguments put forward in Achmea
can be extended to extra-European investment protection regimes, such as the
one foreseen in the CETA
Agreement with Canada
. We cannot exclude, of course, that the ECJ will
distinguish the latter agreement from intra-European BITs, but the level of
abstraction of the Grand Chamber’s position in Achmea indicates that we should expect the CETA rules to fall foul
of the autonomy of EU law for at least four legal considerations.

Firstly, it won’t save the CETA Tribunal that
its jurisdiction will be limited to the interpretation of the agreement and
other international law and that it will have to interpret domestic law in line
with domestic courts (Article 8.31, CETA treaty). The Achmea judgment maintained explicitly that a similar interpretation
of the corresponding provision in Article 8 BIT would not remedy the Court’s
concern about the indirect evaluation of domestic law (para 40-42). Indeed, it
is in the nature of investment protection that a company complains with an
international tribunal about domestic laws and practices, which are to be
evaluated in light of international law.

Secondly, the recent ruling may have concerned
a classic single market case about the access of a Dutch company to the
privatised Slovak health insurance market, thereby affecting two core
guarantees of Union law: the free movement of capital and the freedom of
establishment. There is, however, nothing in the reasoning of the ECJ
indicating that its reasoning is limited to the intra-European fundamental
freedoms. The concern about the autonomy is universal (para 41, 33), covering
all aspects of primary and secondary Union law as a matter of principle,
including all those directives and regulations regulating economic activities
which might possibly be judged in light of the investment protection provisions
in CETA.

Thirdly, the CETA Tribunal won’t have the
competence to send a preliminary reference to Luxembourg. Thus, it will be
confronted with the same criticism the Achmea
judgment put forward against the Slovak-Dutch Tribunal, which the ECJ could
possibly have qualified as a court within the meaning of Article 267 TFEU (para
43-49). Yet, it did not follow down this road. Instead of integrating
investment tribunals into the EU system of judicial protection, it excluded
them from it, thereby laying the basis for their prohibition.

Fourthly, a final award of the CETA Tribunal (called
‘Urteilsspruch’ in the German translation) does not remain an inter-state
affair, which – like in the case of the WTO – has to be settled by diplomatic
means. Instead, final CETA awards are binding on all parties and can be
enforced via domestic courts (Article 8.39, 8.41). The latter are not
authorised to check the compatibility of the award with Union law, something
the ECJ considered insufficient in its recent ruling (paras 50-53).

for Investment Tribunals

It is the primary motivation of the ECJ to
ensure the continued jurisdiction of European courts over investment
protection. It objects to a specialised court system based for companies at the
international level, while highlighting, at the same time, that inter- and
intra-state arbitration remains an option. It is permissible, within certain
limits, for freely expressed wishes of individual companies to settle a dispute
via private arbitration channels (para 54-55). The ECJ reaffirmed, moreover,
that Union law does not generally prohibit international courts and tribunals
under the condition that their structure respects the characteristics of the
supranational legal order.

Dispute settlement within the WTO is such a
mechanism that is unproblematic from the perspective of Union law, precisely
because world trade law does not generally establish directly applicable rights
and obligations for individual companies. If Donald Trump finally installs
punitive tariffs against European aluminium and the EU counteracts, the dispute
remains intergovernmental. Even if the WTO Appellate Body finds subsidies for Airbus
to be incompatible with world trade law, Boeing will not be able to enforce the
award via domestic courts. Dispute settlement within the WTO does not call into
question the autonomy of Union law.

One option to save investment protection
tribunals might be to allow domestic courts to control their findings in light
of Union law, including the option of a reference to the ECJ – instead of
limiting the judicial review at the enforcement stage on the internal coherence
of the arbitral award and on compliance with the narrow public policy exception
(see, for the domestic dispute which led to the Achmea case, Paragraph 1059(2)
of the German Code of Civil Procedure). Such comprehensive control in light of
primary and secondary Union law could possibly avoid the verdict of illegality
on the part of the ECJ against investment tribunals such as the CETA model. It
would, however, contravene the (controversial) raison d’être of international investment protection regimes, whose
rationale is to provide independent oversight of domestic laws by an
institution outside the national court structure in light of international law
It is important to understand that the ECJ’s
reasoning does not remain limited to agreements the Member States have
concluded with third parties. A similar argument applies to treaties between
the EU and third states, such as CETA or the Energy Charter Treaty, on the
basis of which the Swedish company Vattenfall
currently sues Germany
for its decision to terminate nuclear power
production. According to settled ECJ case law, the conflict between a directive
and an international treaty need not be resolved to the benefit of investment
protection rules. International treaties prevail over secondary legislation
only if the treaty in question is capable
of being directly applicable
– a condition the ECJ rarely considers to be
fulfilled with regard to international trade agreements.
Thus, secondary EU legislation has a higher
rank than WTO law within the supranational legal order and in the case of CETA
direct effect is being excluded
explicitly in Article 30.6
. That may sound abstract, but it has tangible
consequences: primary and secondary Union law would prevail in cases of
conflict between EU legislation and an arbitral award under the CETA agreement,
which is based on international law alone. Within the EU legal order,
democratic treaty override is a realistic option, at least for international
treaties, such as the WTO or the CETA Agreements, which are not directly
applicable within the supranational legal order.
My prediction for CETA and TTIP is that an
opinion under Article 218(11) TFEU, which any EU institution or Member State can
initiate, would be a death sentence for the investment protection provisions,
since they are capable of being applied to various aspects of EU law. (Note
that Opinion
, quering whether the investment dispute provisions of CETA are
compatible with EU law, is already pending before the CJEU). With regard to
existing bilateral agreements of the Member States with third states, the
finding may be more ambiguous. If, for instance, a German company complains against
expropriation by Pakistan or Algeria, such a case would not usually have on EU
law dimension, thus avoiding a direct conflict with the autonomy of EU law. The
result may be neo-imperial: within the EU legal order, democratic legislation
prevails in cases of conflict, while European companies could rely on
pre-existing agreements abroad. It will be difficult, however, to convince
third states to sign up to such one-sided agreements in the future. Thus, the
end result of the Achmea judgment
might be nothing less than a restart in international investment protection

Barnard & Peers: chapter 24

Photo credit: Pensionen Pro

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