International Investment Protection within Europe
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International Investment Protection within Europe

The EU's Assertion of Control

Julien Berger

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International Investment Protection within Europe

The EU's Assertion of Control

Julien Berger

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About This Book

The steadily rising number of investor-State arbitration proceedings within the EU has triggered an extensive backlash and an increased questioning of the international investment law regime by different Member States as well as the EU Commission. This has resulted in the EU's assertion of control over the intra-EU investment regime by promoting the termination of bilateral intra-EU investment treaties (intra-EU BITs) and by opposing the jurisdiction of arbitral tribunals in intra-EU investor-State arbitration proceedings. Against the backdrop of the landmark Achmea decision of the European Court of Justice, the book offers an in-depth analysis of the interplay of international investment law and the law of the European Union with regard to intra-EU investments, i.e. investments undertaken by an investor from one EU Member State within the territory of another EU Member State.

It specifically analyses the conflict between the two investment protection regimes applicable within the EU with a particular emphasis on the compatibility of the international legal instruments with the law of the European Union. The book thereby addresses the more general question of the relationship between EU law and international law and offers a conceptual framework of intra-European investment protection based on the analysis of all intra-EU BITs, the Energy Charter Treaty and EU law, as well as the arbitral practice in over 180 intra-EU investor-State arbitration proceedings.

Finally, the book develops possible solutions to reconcile the international legal standards of protection with the regionalized transnational law of the European Union.

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III Conflict between intra-EU IIAs and EU law

Intra-EU investor-State arbitration has been contested by the EU Commission and some Member States for several years. Two main arguments were brought forward against the ‘international investment protection regime’ applicable to intra-EU investments. First, the alleged invalidity of intra-EU BITs as an effect of the lex posterior rule because all intra-EU BITs were treaties concluded prior to the Lisbon Treaty and some Member States’ accession treaties. Second, the inapplicability of intra-EU IIAs, i.e. the intra-EU BITs and the ECT, due to the primacy of EU law. These arguments have generally been rejected by arbitral tribunals as well as the Advocate General Wathelet in his Achmea Opinion. The ECJ, however, has taken a different position in its Achmea decision.
If both EU law and international investment law are understood as equally being part of international treaty law, a conflict between them needs to be resolved according to the VCLT rules of conflict, namely its Art. 30 and Art. 59. However, if their relationship is understood as one of international to domestic law, with EU law being part of the domestic law of the Member States, Art. 27 VCLT could be applicable. In that case EU law could not be invoked to justify a violation of an international legal obligation and there would be no actual legal conflict between both regimes at the international level. Finally, if EU law is understood as something outside the classical dichotomy of domestic and international law, the VCLT cannot be readily applied to its relationship with international treaties.
Against this backdrop, the present chapter starts by assessing the position of EU law within the traditional dichotomy between international and domestic law (I.). It then reflects on the question of lex posterior and the possible invalidity of intra-EU BITs through new Member States’ accession to the EU (II.), before analysing the incompatibility argument, focusing on the Achmea judgment and other possible grounds of incompatibility as well as the arbitral practice on the matter (III.). The last part of this chapter assesses the relationship between the multilateral Energy Charter Treaty and EU law with regard to intra-EU investments (IV.), before summarizing the results of the analysis (V.).

I Nature of EU law and its relation to public international law

1 Particularity of EU law

The ‘nature’ of the EU has been extensively discussed, especially whether the EU is an International Organization (IO) or even a State. In its institutional self-understanding, however, it clearly represents a new legal order and an organization sui generis. This will quickly be recapitulated in the following.
It is a common understanding that the EU is for a number of reasons not (yet) a State:1 It lacks ‘Kompetenz-Kompetenz’, i.e. a State’s competence to determine its own competences and cannot exercise public authority in an unlimited way but can only enjoy competences derived from its Member States.2 There is no European nation to constitute a European State. In difference to a federal State’s subdivisions, it is possible for Member States to leave the EU according to Art. 50 TEU.3 Furthermore, Member States can amend the EU Treaties by virtue of Art. 48 TEU. They remain full subjects of public international law, which is generally not the case for a federal State’s subdivisions.4
1As explained in ECJ, EU accession to the ECHR. 2/13. Opinion, 18 December 2014, ECLI:EU:C:2014:2454, para. 156, “the EU is, under international law, precluded by its very nature from being considered a State.”
2Cf. BVerfG, Lissabon. 2 BvE 2/08. Judgment, 30 June 2009, paras. 231 ff. See also T. Lock, Why the European Union Is Not a State: Some Critical Remarks, European Constitutional Law Review 5 (2009), 407–20, at 409 f.
3Cf. D. Thürer and T. Burri, Self-Determination, (December 2008) in MPEPIL (Online-Edition) (Oxford: Oxford University Press); D. Thürer and T. Burri, Secession, (June 2009) in MPEPIL (Online-Edition) (Oxford: Oxford University Press).
4In great detail, W. Rudolf, Federal States, (May 2011) in MPEPIL (Online-Edition) at para. 16 f. See also J. Crawford, Brownlie’s Principles of Public International Law, 8. ed. (Oxford: Oxford University Press, 2012), at 116 f.
Thus, for many international lawyers the EU continues to constitute an IO, albeit a specific and exceptional one.5 Indeed, the Union has many commonalities with regional IOs and perfectly fits under Art. 2 lit. a) of the 2011 International Law Commission (ILC) Draft Articles on the Responsibility of International Organizations, which defines an IO as “an organization established by a treaty or other instrument governed by international law and possessing its own international legal personality.” The EU also falls under the definition of ‘Regional Economic Integration Organization’ (REIO) contained in several multilateral treaties to which the EU itself is a party.6 Just like its predecessor organizations, the EU is based on multilateral treaties whose existence are governed by public international law.7 The Union has a legal personality derived from its Member States.8 The latter can – just like the EU’s institutions – be bound by international agreements concluded by the EU.9
5Cf. A. Delgado Casteleiro, The International Responsibility of the European Union: From Competence to Normative Control (Cambridge: Cambridge University Press, 2016); B. de Witte, The European Union as an International Legal Experiment in G. de Búrca and J. Weiler (eds.), The Worlds of European Constitutionalism (Cambridge: Cambridge University Press, 2012), pp. 19–56; M. N. Shaw, International Law, 7. ed. (Cambridge: Cambridge University Press, 2014), at 934. See also ICSID, Electrabel v Hungary. Case No. ARB/07/19. Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, para. 4.142.
6See for example, Art. 1 (3) ECT and Art. 2 of the UN Convention on Biological Diversity – 1760 U.N.T.S. 69, 1992.
7See also Art. 54 TEU which provides for a ‘entry into force process’ based on ratification, which is typical for international treaties.
8Cf. Art. 47 TEU.
9Cf. Art. 37 TEU and Art. 216 TFEU.
Nonetheless, for many observers the EU is ‘more’ than an IO.10 The main difference to classical IOs is that the EU treaties allow the organs of the EU not only to create law binding on the Member States but also binding within the Member States. In other words, the EU’s particularity is primarily its direct effect in the domestic legal orders of its Member States and its supremacy vis-à-vis domestic law.11 While public international law is also incorporated into domestic legal orders through a wilful act of a State, either in the moment of conclusion of a treaty in monist countries or through an act of transformation in dualist countries,12 the application of international law depends upon the State’s will. In difference, EU law, however, is autonomous. Another particularity of the EU legal order is that while it is based on international treaties, their role is inter alia to exclude international law in general from the relationship of the EU’s Member States and to replace it with ‘internal’ EU law, which is also reflected in Art. 344 TFEU. As summarized by the Advocate General in his Achmea Opinion, the Member States have “limited, in ever-widening areas, their sovereign rights” in favour of the EU, of which not only themselves but also their nationals are subjects and which is characterized “by its supremacy over the laws of the Member States and also by the direct effect of a range of provisions applicable to their nationals and to the Member States themselves”.13 Thus, from an internal EU and Member States perspective, EU law does neither represent domestic law nor international law stricto sensu but creates a sui generis legal order with elements of both.
10Cf. J. Crawford, Brownlie’s Principles of Public International Law (Oxford: Oxford University Press, 2012), p. 133.
11On the direct effect of EU law and its primacy or supremacy over domestic law see in particular the famous decisions in ECJ, Van Gend & Loos. Case 26/62. Judgment, 5 February 1963, ECLI:EU:C:1963:1 and ECJ, Costa/ENEL. Case 6/64. Judgment, 15 July 1964, ECLI:EU:C:1964:66 as well as the following line of jurisprudence, among others ECJ, European Patent Court. 1/09. Opinion, 8 March 2011, ECLI:EU:C:2011:123, para. 65; General Court, Germany v European Commission. T‑59/09. Judgment, 14 February 2012, ECLI:EU:T:2012:75, para. 63; ECJ, Kadi. C-402/05. Opinion of Advocate General Maduro, 16 January 2008, ECLI:EU:C:2008:11, para. 21.
12See J. Crawford, Brownlie’s Principles of Public International Law (Oxford: Oxford University Press, 2012), at 48 ff.
13ECJ, Achmea. C-284/16. Opinion of Advocate General Wathelet, 19 September 2017, ECLI:EU:C:2017:699, para. 231.
This sui generis legal order is protected by the ECJ. The latter is not only an international court set up by the European treaties but also the constitutional court and the ‘constitutional architect’ of the EU. Unlike traditional international courts like the ICJ or the ECtHR it is not only charged with the application, interpretation and validation of a certain treaty regime but also develops general principles and mechanism de...

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