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Intra-EU Bilateral Investment Treaties and EU Law After Achmea: “Know Well What Leads You Forward and What Holds You Back”

Published online by Cambridge University Press:  06 March 2019

Csongor István Nagy

Abstract

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This paper analyzes the compatibility of intra-EU bilateral investment treaties—intra-EU BITs—with EU law. The status and validity of intra-EU BITs gave rise to a heated debate in Europe, which culminated in the CJEU's recent controversial judgment in Achmea. This Article demonstrates that although the CJEU approached intra-EU BITs from the angle of federalism—where they are both redundant and illegitimate—the reality is that EU law does not provide for the kind of protection afforded by BITs. The paper gives both a positivist and a critical assessment of the Achmea ruling. It argues that the judgment should be construed in the context of the underlying facts and, hence, notwithstanding the CJEU's apparently anti-arbitration attitude, its holding is rather narrow. It gives an alternative theory on intra-EU BITs' fit in the EU internal market—based on European reality—showing that the complete invalidation of intra-EU BITs is flawed because the overlap between BITs and EU law is merely partial: BITs address a subject EU law does not. This Article's central argument is that intra-EU BITs accelerate the internal market and, hence, their suppression does not lead the European integration further, but holds it back. Finally, this Article argues that the prevailing pattern of investment protection is a global scheme that cannot be arrested through regional unilateralism as essayed by the CJEU.

Type
Developments
Information
German Law Journal , Volume 19 , Issue 4 , 01 July 2018 , pp. 981 - 1016
Copyright
Copyright © 2018 by German Law Journal, Inc. 

References

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33 Id. at para. 32.Google Scholar

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37 Id. at paras 43–9.Google Scholar

38 Id. at paras 53.Google Scholar

39 Id. at paras 52.Google Scholar

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46 Id. at para. 60.Google Scholar

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77 Article 59 of the Vienna Convention on the Law of Treaties (VCLT) states: A treaty shall be considered as terminated if all the parties to it conclude a later treaty relating to the same subject-matter and: (a) It appears from the later treaty or is otherwise established that the parties intended that the matter should be governed by that treaty; or (b) The provisions of the later treaty are so far incompatible with those of the earlier one that the two treaties are not capable of being applied at the same time.Google Scholar

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Id. Google Scholar

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Id.; see also Dimopoulos, supra note 71, at 73–4 (2011): Adopting a broad definition of the notion of the ‘same subject matter’, in the sense that two treaties have the same subject matter to the extent that ‘the fulfilment of the obligation under one treaty affects the fulfilment of the obligation of another’, then it can certainly be argued that intra-EU BITs cover the same subject matter as the EU Treaties, to the extent that such conflicts occur. However, even if a narrow definition of ‘same subject matter’ were adopted, intra-EU BITs can still be considered as having the same subject matter as EU law…. EU law provides rules for the post-establishment treatment and operation of foreign investment, the transfer of assets and the imposition of limitations on the rights of individuals resulting from EU or Member States' measures. Hence, both intra-EU BITs and the EU Treaties deal with foreign investment activity, and provide rules for the same aspects of foreign investment regulation, namely their post-establishment treatment and operation, capital movements/ transfers and limitations on private property rights.Google Scholar

Id. Google Scholar

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The system set up by Article 267 TFEU therefore establishes between the Court of Justice and the national courts direct cooperation as part of which the latter are closely involved in the correct application and uniform interpretation of European Union law and also in the protection of individual rights conferred by that legal order … [and] the tasks attributed to the national courts and to the Court of Justice respectively are indispensable to the preservation of the very nature of the law established by the Treaties.Google Scholar

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102 Cf. Astrid Epiney, The Scope of Article 12 EC, 13 Eur. L. J. 611, 616–17 (2007):Google Scholar

[The CJEU] rather bases itself significantly on the effect, the reference or the connection of the particular regularisation of the Member State with the fundamental freedoms. In other words, it does not matter whether the particular regulation itself falls within the scope of application of the Treaty, but it is decisive that the exercise of the right of free movement is regulated by the Community.Google Scholar

Id. Furthermore, “[a]ccording to case-law, there has to be a connection to the fundamental freedoms or the right of free movement of Union citizens.” Id. It does not hinder the application of Article 18 TFEU that the matter comes under by exclusive national legislative competence. Case C-73/08, Bressol & Chaverot, 2009 E.C.R. I-2735, paras. 28–9.Google Scholar

103 Case C-43/95, Data Delecta Aktiebolag and Ronny Forsberg v. MSL Dynamics Ltd., 1996 E.C.R. I-04661, para. 15; Case C-323/95, David Charles Hayes and Jeannette Karen Hayes v. Kronenberger GmbH, 1997 E.C.R. I-01711, para. 17.Google Scholar

104 Case 186/87, 1989 E.C.R. 00195.Google Scholar

105 Id. at paras. 17, 20.Google Scholar

106 Id. at para. 19.Google Scholar

107 Case C-122/96, Stephen Austin Saldanha and MTS Securities Corporation v. Hiross Holding AG, 1997 E.C.R. I-05325.Google Scholar

108 See id. at para. 23.Google Scholar

109 See Wehland, Hanno, Intra-EU Investment Agreements and Arbitration: Is European Community Law an Obstacle?, 58(2) Int'l Comp. L. Q. 297, 315–17 (2009); European Parliament, The Impact of the Rulings of the European Court Of Justice in the Area of Direct Taxation 2010 89–90 (2011), http://www.europarl.europa.eu/document/activities/cont/201203/20120313ATT40640/20120313ATT40640EN.pdf. For an analysis of the pros and cons of a comparison to double taxation treaties see Glinski, supra note 35, at 53–4.Google Scholar

110 Case C-376/03, D. v. Inspecteur van de Belastingdienst/Particulieren/Ondernemingen buitenland te Heerlen, 2005 E.C.R. I-05821.Google Scholar

111 Id. Google Scholar

112 See id. paras. 54–5.Google Scholar

113 Case C-374/04, Test Claimants in Class IV of the ACT Group Litigation v. Commissioners of Inland Revenue, 2006 E.C.R. I-11673.Google Scholar

114 Id. at paras 90–92.Google Scholar

115 The CJEU departed from the AG's Opinion, who argued that double taxation treaties were discriminatory. Opinion OF AG Ruiz-Jarabo Colomer in Case C-376/03, Inspecteur van de Belastingdienst/Particulieren/Ondernemingen buitenland te Heerlen, 2005 E.C.R. I-05821, paras. 90–106.Google Scholar

116 Ruth Masona, Flunking the ECJ's Tax Discrimination Test, 46 Columbia J. Transnat'l L. 72, 107 (2007) (noting that the CJEU “managed to dispose of the tax treaty most-favored nation question without any substantive discussion of whether the EC Treaty implies a most-favored nation entitlement.”).Google Scholar

117 Cf. Hanno Wehland, supra note 109, at 317.Google Scholar

While some aspects of these cases may have been specific to the field of direct taxation, the ECJ's main line of argumentation should also apply to BITs. There is no question that the facilitation of investment between the Member States is as much in line with the objectives of the TEC as is the avoidance of double taxation and that there are no harmonization measures at the Community level in this regard. True, the scope of application of BITs is typically defined by nationality rather than residency – but would that be relevant for the ECJ's assessment? After all, the ECJ's reliance on the inherent incomparability of the situation of residents of a contracting state with that of the residents of a non-contracting state was not much more than an expression of the Court's unwillingness to adopt the MFN approach suggested by the Advocate-General. If this reading is correct, the ECJ could also be expected to treat the limitation of scope to a Member State's own nationals as ‘an inherent consequence’ of BITs. As a consequence, the fact that BITs grant advantages only to investors from selected Member States would not appear to be incompatible with EC law.Google Scholar

Id. Google Scholar

118 As to the operation and limits of the most-favored nation principle in EU law, see Kofler, Georg W., Most-Favoured-nation Treatment in Direct Taxation: Does EC Law Provide for Community MFN in Bilateral Double Taxation Treaties?, 5 Houston Bus. Tax L. J. 1, 31–87 (2005).Google Scholar

119 See Masona, supra note 116, at 104–05.Google Scholar

120 See Dimopoulos, supra note 71, at 82.Google Scholar

121 Cf. Epiney, supra note 102, at 618–19:Google Scholar

[I]n cases where the freedom to move is concerned, the scope of application of the Treaty is already engaged if the regulation in question relates to the residence. This is valid in as much as the regulation concerns the basic conditions of this stay or in as much as the regulation facilitates or complicates the management of the stay, even if it is only indirectly. An indirect or potential reference is hereby sufficient.Google Scholar

Id. Furthermore, it is thus “clear that the requirement of a connection with the (legal) stay can hardly limit the scope of application of the Treaty in terms of Article 12 EC, since a very broad palette of state regulations have a direct or indirect effect.” Id. Google Scholar

122 See contra Hindelang, Steffen, Member State BITs–There's Still (Some) Life in the Old Dog Yet, Y.B. Int‘l Inv. L. Pol‘y 217, 223 (2011).Google Scholar

123 See Dimopoulos, supra note 71, at 82: Considering firstly the substantive provisions of intra-EU IIAs, any incompatibilities that arise can be remedied without affecting the validity or applicability of intra-EU IlAs …. [G]iven that this incompatibility can be remedied by extending unilaterally these rights to all other EU nationals, the incompatibility of substantive intra-EU BITs provisions with the EU law principle of equal treatment can be resolved without affecting the applicability of such intra-EU BITs provisions.Google Scholar

Id.; Cf. Moskvan, supra note, at 118 (“To remedy this conflict, one option would be European-level legislation which extends the benefits of the free transfer of funds, FET, and other privileges contained in BITs to all European investors.”); Contra Clodfelter, supra note 80, at 181–82: In the view of some, this conclusion does not mean the BITs' arbitration provisions should be considered inoperative, since these discriminatory effects can be cured by each offending State by extending the obligations it owes to the other State and to its investors to all Member States and their investors. However, quite apart from the practical and legal obstacles to unilateral extension—which, as established in the jurisprudence of the ECJ, would not undo the incompatibility in the meantime—the extension of dispute settlement mechanisms would certainly aggravate the concerns regarding the preservation of the nature of EU law.Google Scholar

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124 See Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1, paras. 678–83.Google Scholar