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.
Opinion 2/15 – The end of facultative mixity?
To clarify the above questions, the Commission submitted a request for an opinion to the CJEU under Article 218 TFEU. In the subsequent Opinion 2/15, issued on 16 May 2017, the Court found that the Union has exclusive competence only with respect to direct investment. According to the Court, Article 207 TFEU could not be construed as conferring on the Union exclusive external competence in the field of indirect investment. Nor can it be drawn from Article 3(2) TFEU whereby the Union acquires exclusive competence when “is provided for in a legislative act of the Union or is necessary to enable the Union to exercise its internal competence, or in so far as its conclusion may affect common rules or alter their scope”. In the Court’s view, none of the latter conditions had been fulfilled in the instant case. Notably, it rejected the Commission’s contention that ‘common rules’, as stated in Art. 3(2) TFEU, refers to secondary as well as primary law and, in particular, encompasses Article 63 of the TFEU.
However, the Court held that the exercise of the Union’s external competence is warranted, pursuant to Article 216 TFEU, by the need to achieve one of the objectives set out in the treaties. Despite the palpable similarities with Article 3(2) TFEU, this provision should be understood as constituting the legal basis for implied EU powers that are not necessarily exclusive. The Court read that this provision in conjunction with the rules governing a shared competence matter, namely the free movement of persons, services and capital. Notably, Article 63 TFEU prohibits all barriers to the free circulation of capital and payments between Member States and between Member States and third countries. This provision undoubtedly covers both direct and indirect investment and is the only EU fundamental freedom aiming to produce its effects also outside the EU Single Market. But since TFEU provisions cannot bind non-EU Members, the external liberalization of capital movements requires the conclusion of international agreements with third countries, such as the EUSFTA.
Turning to the investor-State dispute settlement mechanism, the Court observed that the EUSFTA confers on investors from Singapore the power to bring a claim not only against the EU but also against the Member States. As a result, the agreement removes disputes from the jurisdiction of the Member States. Therefore, the Union and the Member States must enjoy shared competence with respect to the establishment of the investor-State dispute settlement mechanism.
In light of the shared nature of the competence over such matters, the Court concluded that the EUSFTA cannot be concluded by the Union alone. This finding is particularly striking for it seems to overlook the abovementioned dichotomy between ‘compulsory’ and ‘facultative’ mixity. The consequence of this approach is twofold. At one level, it increases the number of cases in which the Union and the Member States have to go through the lengthy and complex mixed agreements procedure. At another, and more theoretical, level, this approach flies in the face of the very essence of the notion of shared competence, which is rightly understood as an ‘either or’ competence rather than a ‘joint’ competence.
Having said that, one should not overrate the implications of Opinion 2/15. In the recent decision Germany v. Council (OTIF) (C-600/14), issued on 5 December 2017, the Court was requested to assess whether a decision of the Council determining the position of the Union vis-à-vis a number of proposed amendments of the Convention concerning international carriage by rail (COTIF) exceeded the Union’s competences. In deciding this case, the Court arguably seized the chance to nuance some of the most salient findings of the above-mentioned opinion. In particular, it implicitly revived the notion of ‘facultative mixity’, which had been seemingly buried by Opinion 2/15. The Court clarified that the position taken in that particular case was justified by the fact that the Council made clear during the proceedings leading up to Opinion 2/15 that a ‘EU-only’ agreement would not have obtained sufficient support from Member States. This finding sheds some important light on the rather cursory reasoning of the Court in Opinion 2/15. The revival of ‘facultative mixity’ shows even more clearly that the EUSFTA and the EU trade agreements more generally constitute an exception in the context of the EU external action. These agreements have sparked so much disagreement and criticism that the Union has de facto no choice. Although they could be ratified by way of both the ‘EU only’ agreements procedure and the ‘mixed agreements’ procedure, the latter, as was shown by the ratification of CETA, is the only politically viable option at the moment.
Which way forward? – The implications of the CJEU’s case law on the future architecture of EU FTAs
In conclusion, the CJEU in both Opinion 2/15 and Germany v. Council (OTIF) (C-600/14) conveyed a clear message: ‘Facultative mixity’ is alive and well. Yet, it is unlikely to be of any use in the domain of trade and investment policy. It follows that, in retrospect, the innovations brought by the Treaty of Lisbon are far less important than expected (and hoped for) by the Commission and some commentators. Like it or not, the complete transferal on the Union of competences in the field of international investment policy is neither warranted by the text of the EU Treaties, nor is it politically sustainable at the moment. The flipside of this approach is that the development of a comprehensive external trade policy becomes more difficult. The CETA shows that the road to ratification of comprehensive agreement is generally long and bumpy. As of today, only six Member States have ratified CETA. Moreover, Wallonia’s opposition to this treaty is unlikely to remain an isolated episode. One cannot rule out that future EU trade agreements would get stuck in the quagmire of national ratification processes.
Against this backdrop, the Commission reportedly proposed a model for the fast track ratification of trade deals that should be applied for the first time to the new trade agreements with Australia and New Zealand. A leaked document that Trade Commissioner Malmström allegedly circulated among EU ambassadors revealed how such a fast track ratification could be realized: The idea is to split future agreements into an ‘EU FTA’ and ‘EU BIT’. The FTA will regulate all trade matters as well as the liberalization of FDI (including pre- and post-establishment national treatment, post-establishment most-favored-nation treatment, performance requirements). A separate BIT will contain provisions on the protection of direct and indirect investment (including standards of investment protection, such as fair and equitable treatment, expropriation, post-establishment national treatment and most-favored-nation treatment, performance requirements) and the ICS/ISDS. According to the leaked document, the BIT could also contain provisions on the Multilateral Investment Court, once it is established. This approach seems to be implicit in or at least compatible with the latest trade and investment package of the Commission ‘A balanced and progressive trade policy to harness globalisation’, where it is recommended that negotiations for trade agreements with Australia and New Zealand should only encompass subjects over which the EU has exclusive competence. According to the Commission, this will allow the EU to “mov[e] forward quickly”, which will “strengthen[…] the EU’s trading position in the world”. In this respect, the Commission adds that the decision to exclude investment protection and ISDS from the talks is justified by the fact that debate with the European Parliament and Council on the best future architecture for EU trade agreements and investment protection agreements is still ongoing.
Similarly, the EU-Japan FTA does not include measures on investment protection and ISDS. In fact, the investment provisions in the EU-Japan FTA, contained in Section B of Chapter 8, are limited to investment liberalisation issues, such as the protection against non-discrimination. According to the Commission, the parties are in the process of also negotiating investment protection standards and investment protection dispute resolution. The result of these ongoing negotiations will probably feature in a separate international investment agreement.
By adopting this ‘double-track’ solution, the Union trades speed for solidity. The implementation of its International Investment Policy will probably take longer than expected and it will be more exposed to national political turbulences. That being said, it would be wrong to assume that the ‘double-track’ solution would clear the way once and for all. The challenge of compatibility with the EU legal order – which the Court has eluded in Opinion 2/15 – and the national legal systems lurk around the corner. The positive decision of the French Conseil Constitutionnel should, by no means, tempt us to think that other courts will rule likewise. A crucial word on EU International Investment Policy will be said in the decision of Opinion 1/17, where the Court will be requested to decide a legal question stemming from a purely political conflict between, on the one hand, the Belgian province of Wallonia, and, on the other hand, the Belgian Federal Government and the Commission. Whatever the outcome will be, it is already possible to draw an important conclusion. The trajectory of the Union’s competence over foreign investment illustrates that closer integration comes at a (political) price. Contrary to what happened in other fields (notably economic and monetary policy), the Court seems more reluctant to endorse the ‘unionification’ of competences. This result is not close to Commission’s initial plans, but it is the only one compatible with the complexity of the European construction.