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FINANCIAL RESPONSIBILITY IN EUROPEAN INTERNATIONAL INVESTMENT POLICY

  • Jan Kleinheisterkamp (a1)
Abstract

EU Financial responsibility resulting from investor-state arbitration is a politically sensitive topic that is currently shaping the emerging European international investment policy. What level of protection can foreign investors be granted in future EU investment treaties without compromising EU ‘policy space’? How much review of its regulatory powers by arbitral tribunals, rather than by the CJEU, is the EU willing to accept? Taking the Commission's recent draft Regulation on managing financial responsibility as the starting point, this article analyses the implications that future EU investment agreements may have for the existing safeguards balancing private and public interests in EU law. It discusses the different policy choices in the light of fears that investment treaties may affect the EU policy space. A more scientific and sustainable approach is then suggested for ensuring that future EU agreements provide sufficient clarity regarding the outer bounds of financial responsibility and criteria for liability with the aim of maximizing legal certainty for both investors and host states.

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1 Proposal for a Regulation of the European Parliament and of the Council establishing a framework for managing financial responsibility linked to investor-state dispute settlement tribunals established by international agreements to which the European Union is a party (21 June 2012), COM(2012) 335 final, 2012/0163 (COD).

2 COM(2010) 343 final.

3 Art 3(1)(e), 206, 207(1) TFEU.

4 COM(2010) 344 final.

5 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] OJ L 351/40 (12 December 2012).

6 See the leaked mandates approved by the Council at its 3109th meeting, 12 September 2011: <http://www.s2bnetwork.org/themes/eu-investment-policy/eu-documents/text-of-the-mandates.html>.

7 ‘EU and Canada Strike Free Trade Deal’, European Commission press release (18 October 2013) <http://trade.ec.europa.eu/doclib/press/index.cfm?id=973>.

8 ‘Statement from United States President Barack Obama, European Council President Herman Van Rompuy and European Commission President José Manuel Barroso’, European Commission memo (13 February 2013) <http://europa.eu/rapid/press-release_MEMO-13-94_en.htm>; see also (nn 13 and 14).

9 ‘Commission Proposes to Open Negotiations for an Investment Agreement with China’, European Commission press release (23 May 2013) <http://trade.ec.europa.eu/doclib/press/index.cfm?id=900>.

10 For more detail see Kleinheisterkamp, J, ‘European Policy Space in International Investment Law’ (2013) 27(2) ICSID Review 416–31.

11 Recital 6 of Regulation (EU) No 1219/2012 (n 10); on the background of this recital see Kleinheisterkamp (n 10) 427–8.

12 Art 3A of the negotiating mandate given by the Council to the Commission (n 6). See also ‘Facts and Figures of the EU-Canada Free Trade deal’, European Commission press release (18 October 2013), <http://trade.ec.europa.eu/doclib/press/index.cfm?id=974>, affirming that the investment protection provisions in CETA will be ‘in line with EU Member States best practices in their existing [BITs]’ but also that ‘at the same time, [they] fully preserve the right of the parties to regulate and implement their public policy objectives’.

13 See the leaked ‘Recommendation for a Council Decision authorising the opening of negotiations on a comprehensive trade and investment agreement, called the Transatlantic Trade and Investment Partnership, between the European Union and the United States of America’ COM(2013) 136, 12 March 2013, <http://www.s2bnetwork.org/fileadmin/dateien/downloads/EU_Draft_Mandate_-_Inside_US_Trade.pdf> (Annex section 15).

14 Final Report of High Level Working Group on Jobs and Growth, 11 February 2013, <http://trade.ec.europa.eu/doclib/docs/2013/february/tradoc_150519.pdf>.

15 See in more detail Radu, A, ‘Foreign Investors in the EU – Which ‘‘Best Treatment’’? Interaction between Bilateral Investment Treaties and EU Law’, (2008) 14 ELJ 237; also Kleinheisterkamp, J, ‘Investment Protection and EU Law: The Intra- and Extra-EU Dimension of the Energy Charter Treaty’ (2012) 15(1) Journal of International Economic Law 85, 87–8, 89–95.

16 See especially ECJ Cases C-205/06 Commission v Austria [2009] ECR I-1301; C-249/06 Commission v Sweden [2009] ECR I-1335; C-118/07 Commission v Finland [2009] ECR I-10889.

17 See in more detail Kleinheisterkamp (n 10); see also art 65(1)(b) and (2) TFEU.

18 ‘European Commissioner for Trade Karel De Gucht on the Transatlantic Trade and Investment Agreement: The cultural exception is not up for negotiation!’, European Commission press release (22 April 2013) <http://trade.ec.europa.eu/doclib/press/index.cfm?id=890>.

19 For a more detailed discussion of EU legislation denying of national treatment to investors from third countries, see Torrent, R, ‘The Contradictory Overlapping of National, EU, Bilateral and Multilateral Rules on Foreign Direct Investments: Who Is Responsible for the Mess?’ (2011) 34 Fordham International Law Journal 1377, 1378–83.

20 Kleinheisterkamp (n 15) 94–5.

21 Case C-264/09 European Commission v Slovak Republic, ATEL [2011] ECR I-8065.

22 Opinion AG Jääskinnen, [2011] ECR I-8067, para 63.

23 ATEL (n 21) para 30.

24 ibid, paras 50–51.

25 But see the criticism by A Boute, Case C- 264/09, Commission v Slovakia, with annotation (2012) CMLRev 1179, 1184–96.

26 Opinion AG Jääskinnen (n 22) para 109.

27 ibid, paras 109–110.

28 See Case C-17/03 VEMW [2005] ECR I-4983, paras 63, 71; see also Case C-439/06 Citiworks AG v Flughafen Leipzig/Halle GmbH [2008] ECR I-3913, para 55.

29 Case 6/64 Costa v ENEL [1964] ECR 585 (emphasis added).

30 Art 5(3) TEU: ‘Pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties.

The Member States shall take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union.

The Member States shall facilitate the achievement of the Union's tasks and refrain from any measure which could jeopardise the attainment of the Union's objectives.’

31 See (n 16).

32 For the irrelevance of the elimination of incompatibility of BITs with EU policy as a ground for the Commission to revoke authorization of existing BITs from the Regulation 1912/2010 (n 5) see Kleinheisterkamp (n 1) 424–7. In these terms, the ATEL case is not technically about conflict between a BIT and EU law because art 351(1) TFEU resolves the substantive conflict in favour of the former, but about the incompatibility with EU policy (as spelled out in the Electricity Directive) and thus the Member State's obligation to eliminate the incompatibility.

33 See (n 15).

34 See in detail Kleinheisterkamp (n 15) 98–9.

35 (n 1214).

36 See (n 1).

37 COM(2012) 335 final art 3: ‘Apportionment criteria – 1. Financial responsibility arising from a dispute under an agreement shall be apportioned according to the following criteria:

  1. (a)

    (a) the Union shall bear the financial responsibility arising from treatment afforded by the institutions, bodies or agencies of the Union;

  2. (b)

    (b) the Member State concerned shall bear the financial responsibility arising from treatment afforded by that Member State, except where such treatment was required by the law of the Union.

Notwithstanding point (b) of the first subparagraph, where the Member State concerned is required to act pursuant to the law of the Union in order to remedy the inconsistency with the law of the Union of a prior act, that Member State shall be financially responsible unless the adoption of such prior act was required by the law of the Union.’

38 Joined Cases C-9/90 Francovich [1991] ECR I-5373, para 35: ‘It is a principle of Community law that the Member States are obliged to make good losses and damage caused to individuals by breaches of Community law for which they can be held responsible.’

39 Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur and Factortame [1996] ECR I-1029, paras 28–29; for art 340(2) TFEU see below at n 47.

40 Case C-446/06 Danske Slagterier [2009] ECR I-2119, para 61, referring to Joined Cases C-104/89 and C-37/90 Mulder and Others v Council and Commission [1992] ECR I-3061, para 33, and Brasserie du Pêcheur and Factortame (n 39), para 85.

41 The finding of illegality of a measure of the EU ‘has the legal effect of requiring the competent Community institutions to take the necessary measures to remedy that illegality’, Order of 8 November 2007 in Case C-421/06 Fratelli Martini and Cargill [2007] ECR I-152, para 52.

42 ECJ, Joined Cases C-397/98 and C-410/98 Metallgesellschaft and Others [2001] ECR I-1727, paras 104–106.

43 See eg in Germany Bundesverfassungsgericht 1 BvL 77/78 (Naßauskiesung), decision of 15 July 1981, BVerfGE 58 (1981) 300, 322–4.

44 Art 267 TFEU.

45 See in detail von Aaken, A, ‘Primary and Secondary Remedies in International Investment Law and National State Liability: A Functional and Comparative View’ in Schill, S, International Investment Law and Comparative Public Law (OUP 2010) 721, 730–1. The logic of dispensing foreign investors from exhausting national remedies emerged as a solution to the low effectiveness of the rule of law in many developing countries and at a time where the directions of investment streams where unidirectional and the ‘bilateral’ reciprocity of the investment treaties was ‘rather a matter of prestige … than reality’; Mann, FA, ‘British Treaties for the Promotion and Protection of Investments’ (1981) British Yearbook of International Law 241.

46 See also Case C-511/03 Ten Kate [2008] ECR I-8979, para 32: ‘Community law does not impose any obligation on a Member State to bring an action for annulment or failure to act for the benefit of one of its citizens’; see also Electrabel SA v Hungary, ICSID Case No Arb/07/19, Decision on Jurisdiction, Applicable Law and Liability, para 4.169.

47 Joined Cases C-120/06 and C-121/06 FIAMM and Fedon, paras 170 and 175.

48 ibid.

49 Case C-149/96 Portugal v Council [1999] ECR I-8395, para 47; Case C-93/02 P Biret International v Council [2003] ECR I-10497, para 52; Case C-377/02 Van Parys [2005] ECR I-1465, para 39.

50 The reasons given by the CJEU are that WTO law, even where a breach has been established, still allows the parties to find a solution by negotiations, which would be compromised if EU courts could impose certain behaviour following the claim of affected individuals; and that ‘by undertaking [specifically] to comply with the WTO rules … the Community did not intend to assume a particular obligation in the context of the WTO, capable of justifying an exception to the principle that WTO rules cannot be relied upon before the Community courts and enabling the Community courts to review the legality’; Van Parys (n 49), paras 41 and 52.

51 FIAMM (n 477), para 111; for the same conclusion see already Weiß, W, ‘Zur Haftung der EG für die Verletzung des WTO Rechts’ [2005] Europarecht 277, 297300.

52 FIAMM (n 477), para 175.

53 ibid, para 176.

54 Joined Cases 83/76, 94/76, 4/77, 15/77 and 40/77 Bayerische HNL Vermehrungsbetriebe and Others v Council and Commission [1978] ECR 1209, para 5 (emphasis added).

55 Brasserie du pêcheur and Factortame (n 39), para 45 (emphasis added).

56 See (n 6).

57 C Tietje, E Sipiorski, G Töpfer, ‘Responsibility in Investor-State-Arbitration in the EU—Managing Financial Responsibility Linked to Investor-State Dispute Settlement Tribunals Established by EU's International Investment Agreements’ (December 2012) EXPO/B/INTA/FWC/2009-01/Lot 7/31, <http://www.europarl.europa.eu/committees/en/studiesdownload.html?languageDocument=EN&file=79450> 15–17.

58 For the inclusion of the ‘Fair and Equitable Treatment’ standard as providing the ‘highest possible level of legal protection and certainty for European investors’ in accordance with ‘the Member States’ experience and best practices regarding their bilateral investment agreements', i.e. a priori without any restraining qualifications, see the mandate given by the Council to the Commission for the FTA negotiations with Canada, India and Singapore, above (n 6). Contrast this with the clarification in art 5(2) of the 2004 Canadian Model Foreign Investment Protection Agreement (FIPA), which coincides with art 5(2) 2012 US Model BIT and is based on the ruling of the NAFTA Free Trade Commission: ‘2. The concepts of ‘‘fair and equitable treatment’’ and ‘‘full protection and security’’ in paragraph 1 do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens.’

59 Consider the safeguards in art 207(4) TFEU; the difficulty of the Commission invoking art 8(2) of the draft Regulation in the light of its art 3(1)(b) and more generally arts 6(e) and 165(4) TFEU; as well as the limited—if any—powers of arbitral tribunals to order a state to take specific action, see Antoine Goetz et al v Republic of Burundi, ICSID Case No ARB/95/3, paras 132–136 (giving Burundi the choice either to restitute certain licenses to the investor or to compensate for the resulting damages); but see the US Federal District Court for the Western District of Texas in Sky Petroleum v Albania, Case No A-12-CA-023-SS, Order and Preliminary Injunction (20 January 2012) (enjoining the Government of Albania from awarding, transferring or otherwise disposing of petroleum exploration and exploitation rights purportedly held by the claimant investor until an investment tribunal could be constituted and decide the matter), also von Aaken (n 45) 733–5.

60 See Kleinheisterkamp (n 15) 98–9.

61 See text accompanying (nn 1014).

62 But see the senior trade policy advisor of the Dutch government, Lavranos, N, ‘In Defence of Member States’ BITs Gold Standard: The Regulation 1219/2012 Establishing a Transitional Regime for Existing Extra-EU BITs – A Member State's Perspective’ (2013) 10(2) Transnational Dispute Settlement 1, 12 and 14, available also at <http://ssrn.com/abstract=2226979>, announcing that the Council would ‘fiercely’ oppose the second international investment Regulation and emphasizing the passage in the Council's ‘Conclusions on a comprehensive European international investment policy’ (25 October 2010), <http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/117328.pdf>, that ‘the creation of a common EU international investment policy should increase the current level of protection and legal security for the European investor abroad’.

63 Boute (n 25) 1194–5, pointing also at Opinion AG Sharpston, Case C-118/07 (n 16), paras 27 and 34–35 (‘the application of Article 307 EC is not adequately safeguarded by the uncertain interpretation of clauses in an international agreement’; ‘[t]he mere possibility that an international court or an arbitral tribunal might interpret the contested clause in that way does not suffice to discharge Finland's obligations’); Opinion AG Poiares Maduro, Cases C-205/06 and 249/06 (n 16), para 62; for the problem of vagueness of investment treaties in general see Suez, Sociedad General de Aguas de Barcelona SA and InterAguas Servicios Integrales del Agua SA v Argentine Republic, ICSID Case No ARB/03/17, Decision on Liability of 30 July 2010, para 196 (‘an especially difficult challenge’); Saluka Investments BV v Czech Republic (UNCITRAL), Partial Award of 17 March 2006, para 297 (‘The “ordinary meaning” of the “fair and equitable treatment” standard can only be defined by terms of almost equal vagueness’); CMS Gas Transmission Company v Argentine Republic, ICSID Case No ARB/01/8, Award of 12 May 2005, para 273 (‘Argentina's concern about [the Fair and Equitable Treatment standard] being somewhat vague is not entirely without merit’); see also Chung, O, ‘The Lopsided International Investment Law Regime and its Effect on the Future of Investor-State Arbitration’ (2007) 47 VaJIntlL 953, 961; Douglas, Z, The International Law of Investment Claims (CUP 2009) para 150; von Aaken, A, ‘International Investment Law between Commitment and Flexibility’ (2009) 12(2) JIEL 507, 514 and 527–31; Schill, S, ‘Enhancing International Investment Law's Legitimacy: Conceptual and Methodological Foundations of a New Public Law Approach’ (2011) 52 VaJIntlL 57, 66–7.

64 Vattenfall AB and others v Federal Republic of Germany, ICSID Case ARB/12/12, registered 31 May 2012; cf L Peterson, ‘Germany is Sued at ICSID by Swedish Energy Company in Bid for Compensation for Losses Arising out of Nuclear Phase-Out’, IAReporter, 1 June 2012, <http://www.iareporter.com/articles/20120601_1>.

65 Ping An Life Insurance Company of China, Limited and Ping An Insurance (Group) Company of China, Limited v Kingdom of Belgium, ICSID Case ARB/12/29, registered 19 September 2012; cf L Peterson, ‘Chinese Insurer Files ICSID Arbitration against Belgium; Ping An Lost $2.3 Billion When Fortis Bank Crumbled’, IAReporter, 22 September 2012, <http://www.iareporter.com/articles/20120922_1/>.

66 cf L Peterson, ‘New Arbitration Threat Looms for Spain as Legislature Debates New Measures Affecting Solar-Thermal Energy’, IAReporter, 12 November 2012, <http://www.iareporter.com/articles/20121112_2>; L Peterson , ‘Solar Investors File Arbitration Against Czech Republic; Intra-EU BITs and Energy Charter Treaty at Center of Dispute’, IAReporter, 15 May 2013, <http://www.iareporter.com/articles/20130515_1>.

67 Section 2102(b)(3) of the Trade Act 2002, 19 USC 3802, Public Law 107–210, reiterated in, and in force under, the Bipartisan Agreement on Trade Policy between Congressional leaders of 10 May 2007, <http://www.ustr.gov/sites/default/files/uploads/factsheets/2007/asset_upload_file127_11319.pdf>.

68 US–Peru FTA, signed 12 April 2006, <http://www.ustr.gov/trade-agreements/free-trade-agreements/peru-tpa/final-text>; US–Colombia FTA, signed 22 November 2006, <http://www.ustr.gov/trade-agreements/free-trade-agreements/colombia-fta/final-text>; U.S.–Panama FTA, signed 28 June 2007, <http://www.ustr.gov/trade-agreements/free-trade-agreements/panama-tpa/final-text>; US–South Korea FTA, signed 30 June 2007, <http://www.ustr.gov/trade-agreements/free-trade-agreements/korus-fta/final-text>, Preamble paragraph 5: ‘Agreeing that foreign investors are not hereby accorded greater substantive rights with respect to investment protections than domestic investors under domestic law where, as in the United States, protections of investor rights under domestic law equal or exceed those set forth in this Agreement’ (original emphasis).

69 See eg Annex B of the 2012 US.Model BIT, incorporating under 4(a) the Penn Central test of the U.S. Supreme Court for regulatory takings, Penn Central Transportation Co v City of New York 438 US.104 (1978); see also the clarification in (b) that ‘[e]xcept in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations’.

70 See (n 58).

71 See Australian Government Department of Foreign Affairs and Trade, ‘Australia-United States Free Trade Agreement: Fact Sheets – Investment’, <http://www.dfat.gov.au/fta/ausfta/outcomes/09_investment.html>; see art 11.16 US–Australia FTA 2004.

72 See text accompanying n 52.

73 See above n *.

74 INTA Report A7-0124/2013 of 26 March 2013, <http://www.europarl.europa.eu/sides/getDoc.do?type=REPORT&reference=A7-2013-0124&language=EN> (amendments 4 and 5).

75 European Parliament (Plenary), text adopted on 23 May 2013 in Procedure 2012/0163(COD), P7_TA-PROV(2013)0219, <http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2013-0219+0+DOC+XML+V0//EN> (amendments 4 and 5).

76 COM(2012) 335 final (n 1) (emphasis added).

77 See above nn 74 and 75 (amendment 3) (emphasis added).

78 See above n 74 (amendment 3).

79 Answer given by Mr de Gucht on behalf of the Commission on 29 January 2013, Parliamentary question E-011230/2012, <http://www.europarl.europa.eu/sides/getAllAnswers.do?reference=E-2012-011230&language=EN>.

80 Answer given by Mr De Gucht on behalf of the Commission on 22 March 2013, Parliamentary question E-001132/2013, <http://www.europarl.europa.eu/sides/getAllAnswers.do?reference=E-2013-001132&language=EN>.

81 See the Supreme Court of Canada in Dunsmuir v New Brunswick [2008] 1 SCR 190 at 52: ‘This does not mean that the presence of a privative clause is determinative. The rule of law requires that the constitutional role of superior courts be preserved and … neither Parliament nor any legislature can completely remove the court's power to review the actions and decisions of administrative bodies. This power is constitutionally protected.’

82 See more generally on the comparative public law approach Schill's ‘Introduction’ in Schill, S (ed), International Investment Law and Comparative Public Law (OUP 2010) 1, 2337.

83 See the leaked Meeting Document of 6 November 2012 from the European Commission to the Trade Policy Committee on ‘EU Canada Comprehensive Economic and Trade Agreement – Landing Zone’, Council Document DS 1744/12 (EU Restricted), 9, <http://www.lapresse.ca/html/1633/Document_UE_2.pdf>; see also Commissioner De Gucht in the Plenary debate in the European Parliament on 22 May 2013 on the Parliamentary questions O-000043/2013 (B7-0120/2013), 22 May 2013, <http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+CRE+20130522+ITEM-019+DOC+XML+V0//EN>: ‘The Commission … is endeavouring to better clarify the content of our investment protection standards without reducing the level of protection, for example by including useful guidance on the practice of arbitral tribunals.’

84 See (n 58).

85 See eg Vandevelde, K, ‘A Unified Theory of Fair and Equitable Treatment’ (2010) 43 International Law and Politics 43; see also Kalicki, J and Medeiros, S, ‘Fair, Equitable and Ambiguous: What is Fair and Equitable Treatment in International Investment Law’ (2007) 22(1) ICSID Review 27.

86 See also Montt, S, State Liability in Investment Treaty Arbitration (OUP 2009) 76.

87 See also Kleinheisterkamp (n 10) 431.

88 See the specific objectives set out in the letter of 20 March 2013 by which the Obama Administration notified Congress of its intent to negotiate the TTIP, <http://www.ustr.gov/sites/default/files/03202013%20TTIP%20Notification%20Letter.PDF>: ‘Seek to secure for U.S. investors in the EU important rights comparable to those that would be available under U.S. legal principles and practice, while ensuring that EU investors in the United States are not accorded greater substantive rights with respect to investment protections than U.S. investors in the United States’.

89 For the problems of such delegation see eg Roberts, A, ‘Power and Persuasion in Investment Treaty Interpretation: The Dual Role of States’ (2010) 104(2) AJIL 179, 185–91.

90 On the backlash phenomenon see generally Waibel, M et al. , The Backlash against Investment Arbitration (Kluwer 2010).

91 See Section III.A.

92 See Section III.B.

93 See Section IV.A.

94 See Section IV.B.

95 See IV.C.

An early version of this article <http://ssrn.com/abstract=2222580> was submitted to the European Parliament's Committee on International Trade (INTA) on 10 December 2012. I would like to thank Jonathan Bonnitcha, Colin Brown, Pierre d'Argent and Monika Hlávková, as well as the two anonymous reviewers for their critical and helpful comments; all views and errors remain, of course, exclusively mine.

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