INVESTOR-STATE DISPUTE SETTLEMENT IN THE EU: CERTAINTIES AND UNCERTAINTIES.

• Author: Lopez-Rodriguez, Ana M.

Abstract

Since the entry into force of the Treaty of Lisbon in 2009, the EU has undertaken the negotiation of a series of trade and investment agreements with other states, such as Canada, the United States, Vietnam and Singapore. The inclusion of ISDS (investor-State dispute settlement) in these agreements concluded by the EU has raised, in particular, a number of legal issues and met significant opposition in European civil society. Following from this, the EU has carried out reforms which include, inter alia, the creation of an Investment Court System (ICS). In Opinion 2/2015, concerning the Free Trade Agreement between the European Union and the Republic of Singapore, the CJEU has had the opportunity to rule on the competence of the EU on investment policy and on certain aspects of investor-State dispute settlement. However, the Court has not yet ruled on the conformity of ISDS with EU law. This article deals with some of the certainties and uncertainties regarding ISDS from a European perspective. Particular attention is paid to whether the alleged constitutional obstacles posed by ISDS are also present in the proposed Investment Court System. Ultimately, it attempts an assessment of the viability of investor-State dispute settlement in the context of the EU's external action.

Key words: European Union, foreign investments, ISDS, ICS, TTIP, CETA, EU-Singapore Agreement

1. INTRODUCTION II. ISDS: FEATURES AND ALLEGED DRAWBACKS A. Features B. Alleged drawbacks C. Proposals for reform III. From ISDS to ICS A. The political debate against ISDS in Europe B. The ICS 1. The Investment Court System in TTIP 2. The Investment Tribunal in CETA 3. The Pursuit of a Multilateral Investment Court IV. THE CJEU'S POSITION ON INVESTMENT POLICY AND ISDS. V. LEGAL UNCERTAINTIES: THE COMPATIBILITY OF ISDS/ICS WITH EU LAW A. The autonomy and primacy of EU Law B. Competence to hear actions for damages 1. Monetary damages for breach and the internal market C. Compatibility of ISDS/ICS and the principles of direct effect and non-discrimination based on nationality VI. CONCLUSIONS I. INTRODUCTION

   Trade policy has become one of the pillars of the external action of the European Union with the entry into force of the Treaty of Lisbon in 2009, which also confers on the Union exclusive competence on foreign direct investments. (1) In accordance with this new competence, the European Union has adopted regulations, on the one hand, to articulate the transition from the old model of bilateral investment treaties (BITs) signed by Member States (2) and, on the other hand, to clarify the financial responsibility between the Member States and the European Union in case of conflict. (3) It has also undertaken the negotiation of a series of investment agreements with other states, such as Canada, the United States, Vietnam and Singapore. (4) The inclusion of ISDS in these agreements has raised, in particular, a number of legal issues and has met significant opposition in European civil society and amongst prominent politicians in the Member States. The European Parliament, too, has witnessed an increasing hostility towards ISDS in relation to both The Transatlantic Trade and Investment Partnership (TTIP) and the EU-Canada Comprehensive Economic and Trade Agreement (CETA). In June 2015, for instance, it had to postpone voting on the ongoing Transatlantic Trade and Investment Partnership (TTIP) because of the high number of amendments tabled on this issue. (5)

   Against this backdrop, the European Commission seems to have backed away from supporting ISDS. Indeed, it has carried out reforms and proposed a new approach based on the creation of a Permanent International Investment Tribunal or Investment Court System (ICS) to replace traditional ISDS mechanisms. (6)

   It remains to be seen whether the proposed Court will be implemented. TTIP negotiations have been put on standby following the protectionist approach of the Trump Administration and European disapproval. (7) The future of CETA and its Investment Tribunal is also uncertain. (8) On February 15, 2017, CETA was approved by the European Parliament, but the agreement is of mixed nature and therefore requires ratification by at least 36 national and provincial parliaments of the Member States. (9) Until then, it can be provisionally applied, excluding the investment protection provisions and pending the Member States' parliaments voting on it. (10) In this regard, the Regional Parliament of Wallonia in Belgium vetoed CETA but dropped its veto on the condition that the Court of Justice of the European Union (CJEU) issue a ruling on the conformity of the ICS with EU law. (11) Some Member States such as Germany have questioned the compatibility of CETA with those States' Constitutions but provisionally accepted CETA, (12) whereas other Member States are still undecided on CETA. (13)

   In any case, investor-State dispute settlement does not only meet political opposition but is also likely to face legal pitfalls. In order to be operative, ISDS and its alternative, the ICS, must be in conformity with the legal systems of the parties involved. (14) In Opinion 2/2015, concerning the Free Trade Agreement between the European Union and the Republic of Singapore, the CJEU has had the opportunity to rule on the competence of the EU regarding investment policy and certain aspects of investor-State dispute settlement. (15) But the compatibility of ISDS with EU law or the domestic laws of the Member States is still uncertain. (16)

   The present work deals with some core issues relating to investor-State dispute settlement from an EU law perspective. It begins with an overview of ISDS, the ICS, and the general political debate on these issues. (17) Later, it analyzes the CJEU's position hitherto regarding investment policy and ISDS (18) and discusses core issues not yet ruled on by the CJEU. (19)

   By drawing a parallel between the constitutional challenges attributed to investor-state arbitration, (20) the analysis may also provide sufficient ground to determine if the alternative to ISDS--the ICS--is a genuine mechanism of investor-State dispute resolution, different and independent from traditional ISDS. (21) Ultimately, the article attempts an assessment of the future of investor-State dispute settlement in the context of the EU's external action.

2. ISDS: FEATURES AND ALLEGED DRAWBACKS

   Investment arbitration (ISDS)' emerged in the mid-20th century as a dispute settlement mechanism aimed at providing legal certainty and protecting foreign investors against the risks of policy changes and the possible lack of neutrality and impartiality of judges and domestic courts of the host State. (22) ISDS allows to resolve disputes against the host State in a delocalized forum under a neutral legal framework, the international law of investment. (23) This protection, earlier unknown to foreign investors, has resulted in the proliferation of arbitration clauses in bilateral (BITs) and multilateral investment treaties (MITs). (24)

   1. Features

      The major forum for ISDS is the International Center for Settlement of Investment Disputes (ICSID). (25) ICSID is an institution of the World Bank headquartered in Washington, created as a result of the Convention on the Settlement of Investment disputes between States and Nationals of other States, which came into force in 1965. (26) All Member States of the EU, with the exception of Poland, are Parties to this Convention. (27)

      The ICSID arbitration regime is applicable to disputes between nationals of Contracting States and other Contracting States of the ICSID, where the first has made an investment. (28) It is a delocalized arbitration, in the sense that it is subject to the provisions of the ICSID Convention and rules that are completely independent of any State law. (29) The only access to appellate review is internally, within the ICSID. (30)

      Other venues for ISDS are ad-hoc arbitration under the UNCITRAL Arbitration Rules (31) and the Arbitration Institute of the Stockholm Chamber of Commerce. (32) Arbitrations conducted under these fora are different in many aspects from ICSID arbitrations. For example, whereas ICSID awards are final and directly enforceable, excluding any review in national courts, (33) other awards need the support of the traditional mechanisms of enforcement, such as the Convention on the Recognition and the Enforcement of Foreign Arbitral Awards. (34) Here, awards can be refused recognition and enforcement under the same grounds as commercial awards and are subject to the assessment of domestic judges and courts. (35)

      Investment arbitration is closely related to commercial arbitration, although it has its own features, for example, that investment arbitration is "arbitration without privity," (36) monetary damages are the primary remedy for breach, and most awards are self-executing. (37) Aspects of investment arbitral proceedings are similar to those of commercial arbitral proceedings, including the constitution of the tribunal, the applicable principles, and the rendering of the award. Yet, the resolution of the dispute rests on an international treaty governed by public international law and is based on principles aimed at protecting the investor, such as the principle of fair and equitable treatment or the principles of national treatment, most favored nation or full protection and security. (38) As these principles usually come in terms of open and flexible clauses in BITs and MITs, arbitrators have to interpret and construe them referring to the literal wording, but also to arbitral precedent, this playing a more prominent role than in commercial arbitration. (39) In any case, arbitral tribunals are not bound by the principle of stare decisis and do not have the duty to decide the case based on the rulings of previous decisions in similar issues. (40) Therefore, there is a potential risk of inconsistency between arbitral awards, which may...