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Home International Economic Law Archive for category "Bilateral Investment Treaties"

Achmea: The principle of autonomy and its implications for intra and extra-EU BITs

Published on March 27, 2018        Author: 
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On 6 March 2018, the CJEU issued its judgment in Case C-284/16 Achmea, where it opined that intra-EU BITs and in particular their ISDS provisions are incompatible with the principle of autonomy of EU law. In a rather brief judgment, the Court found the ISDS provision under the Netherlands-Slovakia BIT has an adverse effect on the autonomy of EU law, as the latter in enshrined in Articles 344 and 267 TFEU. With this judgment the Court gave a definitive answer to a long-awaited controversial issue as to whether international investment treaties between EU Member States are compatible with EU law. Yet, Achmea does not provide conclusive answers as to the interaction between EU law and international investment law, neither with regard to intra-EU BITs, nor for extra-EU BITs. Considering that the compatibility of ISDS under CETA with EU law is challenged by Belgium and is the subject matter of a pending Opinion, Achmea adds a, admittedly important, piece to the puzzle.

In finding an incompatibility between an intra-EU BIT with EU law, the Court focused exclusively on the ISDS mechanism and its effects on the autonomy of EU law. Although the parties to the dispute and in particular the Commission argued about the existence of incompatibilities on other grounds as well, the most important being non-discrimination, the Court chose to address only the autonomy concerns. Referring to its landmark judgment on autonomy, Opinion 2/13, the Court confirmed the key role that autonomy plays for identifying the compatibility of international dispute settlement with EU law. The argument used is easy follow: the principle of autonomy protects the full effectiveness and consistency of EU law, which entails the uniform interpretation of EU law. Article 19 TEU guarantees autonomy by providing exclusive jurisdiction to the CJEU to offer authoritative interpretations of EU law and enabling a judicial dialogue with national courts via Article 267 TFEU. Investment arbitration under intra-EU BITs can have an adverse effect on autonomy, as investment tribunals a) can decide matters of EU law and b) are not subject to the CJEU’s control.

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United in Mixity? The Future of the EU Common Commercial Policy in light of the CJEU’s recent case law

Published on February 2, 2018        Author:  and
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The post-Lisbon Common Commercial Policy in the field of foreign investment policy

The Lisbon Treaty for the first time expressly attributed exclusive competence to the EU in the area of foreign investment by adding foreign direct investment (FDI) to the scope of the Common Commercial Policy (CCP). The European Commission took not long to put these newly-won competences into use by designing its new European international investment policy. This new investment policy revealed the Commission’s broad interpretation of the competences conferred by the Lisbon Treaty. According to the Commission, the EU’s new common international investment policy should address both direct investment – i.e. investment made “with a view to establishing or maintaining lasting economic links” – and indirect investment, namely all those transactions involving debt or equity securities that do not establish a lasting economic link. Moreover, the common investment policy, as envisaged by the Commission, should cover both the pre-establishment and post-establishment phase.

The EU-Singapore FTA (EUSFTA) was the first trade agreement to rely on the EU’s competence in the field of common commercial policy as expanded post-Lisbon. This agreement embraces a wide range of fields, including trade in goods and services, government procurement, intellectual property rights, and investment liberalization and protection. All too predictably, the composite content of the agreement and, particularly, the inclusion of a chapter specifically dealing with investment protection and investment dispute settlement soon prompted the question of whether the EU’s new exclusive competence could be interpreted as encompassing both direct and indirect investment as well as investor-State dispute settlement mechanism (ISDS). Needless to say, the answer to this question has important practical implications. If the above policy fields and all other matters contained in the FTA were to fall within the scope of exclusive competence of the EU, then such agreements can be concluded as “EU-only” agreements. If these competences are shared, the agreement can be concluded either by the EU alone or as a mixed agreement, namely a treaty to which both the Member States and the Union are parties. Commentators usually distinguish this type of mixity (facultative mixity) from compulsory mixity, which applies when the agreement in question covers both matters falling within the exclusive competence of the European Union and matters falling within the exclusive competence of the Member States.

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Brexit and the Transatlantic Trouble of Counting Treaties

Published on December 6, 2017        Author: 
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As pointed out by the Financial Times (FT), the UK’s withdrawal from the EU will require the renegotiation of more than 700 international agreements from which the UK currently benefits by virtue of its EU membership. Given the political and economic importance of transatlantic relations for both the UK and EU, the United States is arguably a good place to start when it comes to gaining a deeper understanding of the challenge at hand. As this post argues, before reaching the substantive questions surrounding the new agreements, even determining the number of treaties that may need to be replaced with new U.S.-UK ones is not a straightforward task.

In an address of November 28, 2017, Secretary of State Tillerson urged both sides to move the withdrawal process “forward swiftly and without unnecessary acrimony” and offered “an impartial hand of friendship to both parties”. Meanwhile, the Brexit negotiations are nearing a crucial point in mid-December, when it will be determined whether “sufficient progress” has been achieved for the two sides to start looking to the future—with each other and with strategic partners such as the U.S.

In determining the UK’s post-Brexit “special relationship” with the U.S., some preliminary discussions are already underway. However, the UK will be free to conduct fully-fledged negotiations only once it ceases to be an EU member. In anticipation of the many legal and political questions that these negotiations will raise, a preliminary—seemingly simple—matter would be to establish what the actual treaty relations between the U.S. and EU are. Three comprehensive and authoritative sources can be drawn upon to this end: The U.S. State Department’s Treaties in Force 2017, the EU’s Treaty Office Database, and the FT’s Brexit treaty renegotiation checklist. The only problem is, they do not match up. According to the State Department, there are 31 bilateral treaties in force between the EU and U.S., according to the EU’s Treaty Office, the number is 52, and according to the FT, it is 37. Hence, establishing the extent and content of legal relations affected by Brexit amounts in the first place to an empirical challenge.

In an effort to better understand this challenge, this post will first explain the reasons for (most of) these discrepancies, and subsequently offer its own assessment of the number of treaties. Before doing so, it should be stressed that this analysis focusses on bilateral international agreements only, i.e., agreements between the U.S. and the EU, either with or without the EU’s Members States alongside it. Agreements including additional parties would be categorized as multilateral agreements, of which there is also a significant number involving both the EU and U.S. and which raise additional difficulties, as illustrated recently in the dispute over the post-Brexit splitting of tariff rate quotas at the WTO. Moreover, the analysis focusses on treaties in force, thus excluding treaties pending ratification or those which are being provisionally applied (such as the 2007 Open Skies Agreement). As a final caveat, this post does not delve into any of the many administrative agreements concluded directly between U.S. and EU agencies (see for a useful overview the table compiled by Peter Chase in Daniel Hamilton and Jacques Pelkmans (eds.), Rule-Makers or Rule-Takers: Exploring the Transatlantic Trade and Investment Partnership (2015), pp. 55-60). What this post seeks to show is that even a single bilateral treaty relationship is challenging enough to grasp.

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Remaking the World towards ‘Fair and Reciprocal Trade’? The Case for (More) Interdisciplinarity in International Economic Law

Published on November 17, 2017        Author: 
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Geopolitical changes were on full display last week at multiple economic summits in Asia, where red carpet pageantry converged with the dramatic publicity of States brokering new deals at the regional meetings for the Asia-Pacific Economic Cooperation (APEC) in Viet Nam, the Association of Southeast Asian Nations (ASEAN) Heads of State Summit and the 12th East Asia Summit (EAS) in the Philippines, the side meetings of the China-led 16-country bloc drafting the Regional Comprehensive Economic Partnership (RCEP), the Japan-led Trans-Pacific Partnership-11 (recently renamed into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership), with considerable focus on United States President Donald Trump’s 12 day tour in Asia for these meetings as well as for bilateral trade talks with Japan, South Korea, and the Philippines.  In Viet Nam, US President Trump suddenly renamed the Asia-Pacific into the “Indo-Pacific”, a deliberate policy strategy to define Asia beyond China’s growing hegemony into a sphere of alliances built with India, Japan, and other Southeast Asian countries.  

The Asia economic summits conveyed the implicit assumption that international trade and investment treaties had to be revised or rewritten towards “fair trade”, even if there were differing understandings of what that fairness meant.  US President Trump’s address at APEC demanded “fair and reciprocal trade” as part of his ‘America First’ policy, blaming trade agreements for serious US trade deficits with China and other countries. Canadian Prime Minister Justin Trudeau delayed agreeing to renew the TPP partnership under the aegis of the CPTPP, pushing for Canadian interests in ensuring strict environmental and labour standards in the agreement, and succeeding in suspending the problematic provisions in the intellectual property chapter which the US had originated in the TPP draft.  Newly-minted New Zealand Prime Minister Jacinta Ardern claimed victory with the suspension of investor-State dispute settlement clauses from the CPTPP, in favour of compulsory domestic court adjudication for any investment disputes.  In contrast, China took up the cudgels for globalisation and the established institutions and processes of the multilateral system, with Chinese President Xi Jinping firmly declaring at APEC that “economic globalisation is an irreversible historical trend…in pursuing economic globalisation, we should make it more open and inclusive, more balanced, more equitable and beneficial to all.”

The recent pronouncements by world leaders should be of considerable interest to international lawyers, given the heightened political and economic expectations placed on international economic agreements (trade and investment treaties), and what social outcomes they should (or should not) produce beyond the traditionally narrow objectives of liberalising foreign market access.  The international economic system is moving towards a multi-speed configuration of States oscillating between competing economic ideologies (e.g. resurgent new forms of “mercantilist protectionism”, revised ‘mainstream’ neoclassical economics, ‘new’ behavioural economics, among others); changing philosophies of government (e.g. the revival of authoritarianism and ‘illiberal’ democracies, leaning away from liberal democracies); evolving theories on the regulation of property, competition, and information given rapidly-developing technologies (e.g. artificial intelligence and the explosion of automation in supply chains, the domestic and transnational social impacts of the digital ‘sharing’ economy, climate change-driven restructuring to consumption patterns and production processes); and expanding understandings of domestic and transnational challenges to global public goods (e.g. environment, health, peace and security, among others).  Accordingly, there is an even greater burden for international lawyers (especially those that assist or advise States drawing up their respective visions for a new global economic architecture), to clarify and be transparent about how the political, economic, and social ends sought will be effectively met through the current and future mechanisms of international economic law and its institutions for governance and coordination.  Beyond the fog of press publicity, are we candidly and accurately communicating to the politicians the actual limits of international economic treaties, along with their potentials?  

In this post, I argue that international lawyers – especially international economic lawyers tasked with drafting, revising, critiquing, and building the new bilateral, regional, and global constellation of economic treaties – increasingly have to deepen interdisciplinarity, and not just in the sense persuasively observed by Tom Ginsburg and Gregory Shaffer as the “empirical turn in international legal scholarship” (106 American Journal of International Law (2012), pp. 1-46. Perhaps more fundamentally, international lawyers need even more interdisciplinarity, because we are at present hard-pressed to approximate, if not achieve, an idea of “fairness” in the international economic system’s treaties and institutions (no matter how contested that sense of “fairness” is, to begin with).  If we accept that the “fairness of international law” is legitimately our concern as international lawyers and scholars (as Thomas Franck famously argued), we should be more open to readily engaging the interdisciplinary assumptions marshalled in the reform and remaking of international economic treaties and institutions today.  

While we may not of course be the experts in these other disciplines, and we should, indeed, preserve the “relative autonomy” of international law (as Jan Klabbers cautions), some sharpening of our interdisciplinary sensibilities can nevertheless be useful in helping us to test the “good faith” nature of any postulation or assertion on the desired weight, form, content, and structure of our international economic treaties and institutions.  I use three examples of unstated assumptions in the debate over international economic treaties today that illustrate where interdisciplinarity is sorely lacking: 1) that international economic treaties can somehow erase trade deficits and permanently prevent trade imbalances; 2) that international economic treaties can anticipate and provide the most appropriate and suitable dispute resolution mechanism for the particular States parties to these treaties – for the entire life of these treaties – which is problematic with the growing depiction of a supposed ‘binary’ choice between investor-State dispute settlement mechanisms (ISDS) and local court adjudication (and/or political risk insurance); and 3) that international economic treaties can be designed to fully create desired social, environmental, labor, health, education, and all public interest outcomes.  I posit that while interdisciplinarity may show us that international economic treaties could be a correlative, if not possibly one of the causal, factors for desired outcomes, and that we can probably design them with sensitivity and vigilance towards controlling the negative externalities they cause and encouraging positive distributive consequences, the international economic treaty-writing (and rewriting) exercise is complex. We cannot – as politicians do – simplistically oversell or lionise these treaties as somehow the definitive “one size-fits all” solution to remake the world towards “fair and reciprocal trade”.

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The MERCOSUR Protocol on Investment Cooperation and Facilitation: regionalizing an innovative approach to investment agreements

Published on September 12, 2017        Author:  and
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The States Parties of the MERCOSUR (Argentina, Brazil, Paraguay and Uruguay) signed in April 2017 the Protocol on Investment Cooperation and Facilitation (“MERCOSUR Protocol”).

As discussed in this post, the Protocol draws significantly on the Brazilian model investment agreement (the Agreement on Cooperation and Facilitation of Investments – ACFI), which stands out for departing from the traditional design of Bilateral Investment Treaties (BITs), particularly – but not only – by excluding the possibility of investor-State dispute settlement (ISDS).

The emergence of the MERCOSUR Protocol has implications at the level of investment policy, as it represents a step towards the regionalization of the Brazilian model. It reflects the attempt to include in a single document the realities of four countries with important political, economic and investment policy differences, as expressed by the varying trajectories of Argentina and Brazil in the investment area.

It also raises interesting questions from an international law perspective. It highlights the legal challenges faced by Brazil, which not only joined the network of international investment agreements (IIAs) as a late-comer but also opted for embracing a particular approach to investment treaties. Accordingly, aside from provisions that innovate in investment law-making, the MERCOSUR Protocol incorporates provisions whose intention seems to be to insulate Brazil from applying protection standards often found in the over 3,000 treaties that now comprise the network of BITs, but which have been deliberately absent in the ACFI.

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Is International Investment Law moving the ball forward on IHRL obligations for business enterprises?

Published on May 15, 2017        Author: 
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The question of whether businesses are subjects of international law in the absence of express treaty provisions to that effect, and thus can have IHRL obligations, receives mixed answers from legal scholars. Rights granted to businesses under international investment law and under human rights law, and obligations imposed on them under some environmental protection treaties (e.g. the International Convention on Civil Liability for Oil Pollution Damage) show that businesses can be right or duty bearers under international law. The UNGPs also recognise that businesses have a responsibility to respect human rights and remedy violations, but since they are non-binding, they do not introduce a legally enforceable obligation. Since 2014, discussions for a global treaty regulating business impact on human rights have been taking place at the UN level. There is yet little clarity on the form (regional, sectoral, global) and content of such a treaty. Among the key disagreements as to the content of the treaty is whether it should introduce direct human rights obligations for businesses under international law. Some argue that imposing direct IHRL obligations on businesses would not add much to the already existing IHRL framework that requires states to already protect against human rights abuses by business, and that it should not be a “substitute for the states’ duties to fulfil their human rights obligations”. Others argue that effective legal protection requires legal responsibilities of businesses to respect human rights to be recognised in an internationally binding instrument.

While the debate on the BHR treaty is likely to continue for a while longer, some recent developments in international investment law (IIL) seem to be moving the ball forward, albeit slowly, on IHRL obligations for businesses. IIL has been viewed by some of its critics as a force undermining IHRL and this is rightly so in some circumstances. But IIL can also act as a conduit to improve IHRL protection. I will discuss here some of the progress made in this area by the ICSID award in Urbaser v Argentina and some “next generation” investment agreements, most notably, the Morocco-Nigeria BIT and the Indian Model BIT.

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Nigeria and Morocco Move Towards a “New Generation” of Bilateral Investment Treaties

Published on May 8, 2017        Author: 
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Introduction

On 3 December 2016, the Governments of Morocco and Nigeria signed a bilateral investment treaty (BIT) that deserves close scrutiny. The treaty is an important attempt by two developing countries to move toward a new generation of BITs fully aligned with the evolution of international law. Indeed, it contains several largely innovative provisions susceptible to address the criticism raised in the last few years against investment treaties.

From popularity to hostility

Investment treaties, and especially BITs, were popular in the 1990s and 2000s. Their number grew quite spectacularly as did the participation of developing countries. In the last few years, however, BITs have been increasingly perceived by States as inconvenient for several reasons, including unbalanced content, restrictions on regulatory powers, and inadequacies of investment arbitration.

Dissatisfaction with traditional BITs has generated four main types of reaction: (a) reluctance to ratify BITs. Since 2012, only 25 BITs have entered into force (see here); (b) conclusion of facilitation agreements, which radically downgrade the substantive protection of foreign investment and do not provide for arbitration (see, eg, Treaty between Brazil and Mozambique); (c) termination of BITs and adoption of investment legislation (see South Africa Protection of Investment Act, 2015); and (d) upgrading of BITs with a view to striking a better balance between the private and public interests at stake. The BIT concluded – but not in force yet – between Morocco and Nigeria is a fine example of the last typology. Read the rest of this entry…

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Stability vs. Flexibility: Can the European Union find the Balance?

Published on April 25, 2017        Author: 
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To what extent can a State forego its contractual commitments, in particular those arising from a stabilization clause for human rights and environmental protection? (“under a stabilization clause, the host State commits itself either not to enact changes of the domestic law in the future, or at least, not to apply such changes to the investor”, Ohler, Concessions, Max Planck Encyclopedia, 2009.) Our assumption is that stabilization clauses and states’ rights to regulate should be integrated and not be taken as opposite obligations, considered as incompatible. In other words, if framed correctly, stabilization clauses can balance the two conflicting needs at stake: the sanctity of contract and a state’s right to regulate to protect its public interest (Leben, L’évolution de la Notion de Contrat d’État, Revue de l’arbitrage, 2003; Carbone, Luzzatto, Il Contratto internazionale, 1996; Giardina, State Contracts, national versus international law, The Italian Yearbook of international law, 1980; Fatours, International Law and International Contract, 1980; Mann, State Contracts in International Arbitration, 1967).

This post examines whether the (fairly) new European exclusive competence on foreign direct investment changes the way stabilization clauses should be framed in EU State contracts to avoid potential conflicts. There are two different kinds of possible conflicts that could arise: first involving either provisions among themselves, or second, the two different legal regimes at stake (the international and the European).

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The Constitutional Frontiers of International Economic Law

Published on March 9, 2017        Author: 
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The End of Mega-Regionalism?

The future of ‘mega-regionals’, like the Trans-Pacific Partnership (TPP) or the Transatlantic Trade and Investment Partnership (TTIP), has become doubtful since President Trump took office. Through decisions, such as the withdrawal from TPP, he is putting his rhetoric to ‘Make America Great Again’ in action. Yet, the idea to put national values first is not, I argue in a recent issue of the Journal of World Investment and Trade, so different from opposition to mega-regionals elsewhere. Both the ‘new America’ and opponents to mega-regionals in Europe speak in favor of disengaging from mega-regionals and replacing them with action by the nation state. At the same time, rejecting mega-regionals will result in sticking with the existing international institutional infrastructure that is widely regarded as insufficient to effectively regulate globalization for the better.

Despite similarities in their effects, there are important differences across the Atlantic. In the European Union, opposition most vocally comes from the left, not from the right. It also does not come from an elected executive, but from large numbers of citizens and opposition parties, as well as a smaller number of Member States, or even sub-divisions of Member States – think of Wallonia. And it is couched in entirely different vocabulary: Rather than speaking the language of nationalism and protectionism, opposition in the EU invokes constitutional values and rights – namely democracy, the rule of law, and fundamental rights – which are leveraged against mega-regionals and the institutions they come with, notably investor-state dispute settlement (ISDS) and regulatory cooperation.

Increasing Involvement of Constitutional Courts

Couching opposition to mega-regionals in constitutional language has important consequences: It brings in a different set of actors, namely constitutional courts. Following earlier examples in Latin America, the 13 October 2016 ruling of the German Constitutional Court on an application for an injunction against the Canada-EU Comprehensive Economic and Trade Agreement (CETA) brought by some 120,000 individuals is likely just the first of many court rulings in which international economic law encounters its constitutional frontiers head-on. Read the rest of this entry…

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