University of Oslo

University of Oslo Faculty of Law Legal Studies

Research Paper Series
No. 2016-02
Luca Pantaleo and Mads Andenas (eds.)
Cristina Reul (ass. ed.)

The European Union as a Global Model for Trade and

Investment

Electronic copy available at: http://ssrn.com/abstract=2731085

 Table of Contents

List of contributors ........................................................................................................................4

Introduction. The European Union as a Global Role (Legal) Model for Trade and
Investment?, Luca Pantaleo and Mads Andenas .........................................................................7
Constitutional Aspects of the EU’s Global Actorness: Increased Exclusivity in Trade and
Investment and the Role of the European Parliament, Tamara Takács and Ramses
Wessel............................................................................................................................................10
The European Union, Sovereign Debt Crises and Investment Agreements, Giuseppe
Bianco…………………………………………………………………………………...……….23

Investment arbitration under EU investment agreements: is there a role for an autonomous

EU legal order?, Hannes Lenk...................................................................................................37

Investment disputes under CETA. Taking the best from past experience?, Luca
Pantaleo………………………………………………………………………………………….61

The allocation of international responsibility in the context of investor-state dispute

settlement mechanisms established by EU international agreements, Paolo Palchetti…….77

The Promotion of Sustainable Development through EU Trade Instruments, Wybe

Douma..........................................................................................................................................86

Promoting Renewable Energy in the EU: Shifting Trends in Member State Policy Space,
Daniel Behn, Ole Kristian Fauchald and Laura Létourneau-Tremblay.................................104

Towards a future investment treaty: lessons from indirect expropriation cases due to
measures to protect the environmental and public health, Sukma Dwi Andrina………….127

Electronic copy available at: http://ssrn.com/abstract=2731085

 3

Electronic copy available at: http://ssrn.com/abstract=2731085

 List of Contributors

Daniel Behn is a postdoctoral research fellow in international investment law and Arbitration at
the PluriCourts Centre for the Study of the Legitimate Roles of the Judiciary in the Global Order
at the University of Oslo. His previous working experience includes legal practice in
international arbitration and legal consultancy positions for institutions such as the World Bank.

Giuseppe Bianco is a doctoral candidate at the University of Oslo where his research concerns
the role of international law in restructuring sovereign debt owed to private creditors.

Hannes Lenk is a doctoral candidate at the University of Gothenburg. His thesis project concerns
the role of the European Union in international investment law and arbitration.

Laura Létourneau-Tremblay is a researcher at MultiRights/PluriCourts at the University of Oslo.

Her fields of research include the role of investment treaty arbitration in adjudicating
environmental disputes and the protection of human rights.

Luca Pantaleo is a Senior Researcher and Academic Programme Coordinator of CLEER (Centre
for the Law of EU External Relations) at the T.M.C. Asser Istituut, The Hague. His research
interests include public international law and the law of EU external relations.

Mads Andenas is Professor of Law at the Faculty of Law of the University of Oslo. He is the
former UN Special Rapporteur and Chair of the Working Group on Arbitrary Detention. He is
currently the General Editor of European Business Law Review and an Editor of European
Public Law.

Ole Kristian Fauchald is currently professor at the Department for Public and International Law
at the University of Oslo. His fields of research include national and international environmental
law, international trade law (WTO) and international investment law.

Paolo Palchetti is professor of international law at the Department of Law of the University of
Macerata (Italy). He is the director of the PhD programme in Legal Studies of the University of
Macerata and co-editor of QIL—Questions of International Law.

Ramses A. Wessel is professor of international and European law and governance and university
dean of educational innovation at the University of Twente. Research expertise lies in the field of
international and European institutional law and governance. He is member of the Governing
Board of the Centre for the Law of the EU External Relations (CLEER)

Sukma Dwi Andrina is a legal counsel at the Arbitration Institute of the Stockholm Chamber of
Commerce.

4
Tamara Takács is a Senior Researcher at the T.M.C. Asser Istituut. Tamara’s research focuses on
EU institutional law and external relations law as well as comparative constitutional law. She is
member of the Governing Board of the Centre for the Law of the EU External Relations
(CLEER).

Wybe Douma is a senior researcher in EU Law and international trade law at the T.M.C. Asser
Instituut and member of the Governing Board of the Centre for the Law of the EU External
Relations (CLEER).

5
6
Introduction: The European Union as a Global (Legal) Role Model for Trade
and Investment?
Luca Pantaleo and Mads Andenas 1

‘Truly fortunate is the nation, which sets itself the

goal of finding the means to improve, on a broad
scale, all in its current legislation that still hampers
trade, and especially international trade.’
Tobias Asser’s Inaugural Address on Commercial
Law and Commerce, Amsterdam 1862 2

The Treaty of Lisbon has celebrated its sixth anniversary. It implemented major changes of the
EU institutional structure, including in the field of international trade which constitutes the focus
of this volume. Among other things, the Reform Treaty was meant to put into effect a
comprehensive revision of the rules governing EU’s action in this sphere. In particular, the
revision was supposed to bring the multitudinous facets of external trade under the single
umbrella of the Common Commercial Policy (CCP). Six years later we can safely affirm that
such development should not be taken for granted, at least not yet, as demonstrated by the
continued discussion surrounding the competence divide between the EU and the Member
States. 3 In addition, the Reform Treaty has added a new frontline to the debate by bringing
foreign investment into the territory of the CCP - a field in which the European Union had
previously almost no competence, no experience, no expertise or no practice. The Union
virtually had to start from scratch in developing its (newly created) investment policy. It should
therefore come as no surprise that such policy at present still appears, by and large, to be a work-
in-progress, a veritable chantier ouvert.

Despite this the EU has shown no hesitation in imposing itself as a prominent international actor.
Thanks in particular to the Commission and its mighty legal service, the contours of the
emerging investment policy were soon outlined and presented to the Member States and to the
public. 4 Negotiations for what were labelled new generation, comprehensive trade agreements
were launched. Some of them have already been concluded at the time of writing and the
resulting agreements are awaiting ratification – although it is still unclear which parties will
ratify them. Other negotiations will certainly be concluded soon, and new ones commenced. At
present only two agreements are known in their entirety, namely CETA and the EU-Singapore
Agreement. Of the TTIP only few documents have been published, the most relevant of which to

1
Luca Pantaleo is Senior Researcher in EU Law, T.M.C. Asser Instituut. Mads Andenas is Professor of Law,
University of Oslo.
2
See Tobias Asser, A Mission for His Time. Tobias Asser’s Inaugural Address on Commercial Law and Commerce
– Edited and Introduced by Ernst Hirsch Ballin, 33 (T.M.C. Asser Press, 2012).
3
A discussion that eventually led the Commission to request an Opinion to the ECJ concerning the EU-Singapore
Agreement, precisely on competence issues. The case is still pending and is registered at the ECJ’s docket with the
number A-2/15.
4
See the Commission’s Communication ‘Towards a Comprehensive European International Investment Policy’,
COM(2010) 343 Final.

7
the purpose of this study is the EU proposal for the establishment of an investment court. 5 The
rest is still cloaked in diplomatic secrecy. However, based on what is already in the public
domain, it seems safe to affirm that the agreements in question are, or will be, truly innovative.
They aim to liberalise trade in virtually all its forms, including investment. They set out
sophisticated dispute settlement mechanisms, and lay down far reaching obligations in terms of
regulatory transparency and cooperation in a way never done before.

Major innovations often bring major controversies with them. The agreements in question are no
exception to this maxim. At present they are surrounded by so much contention that no one can
safely make predictions as to whether (and when) they are going to be concluded. Despite having
inspired an abundant body of literature, agreements such as CETA and TTIP may never see the
light of day.

Apart from the political opposition that major free trade agreements often generate, there are a
number of legal issues that may stand in the way of the conclusion of the agreements in question.
This volume intends to address some of these issues, and contribute to the already flourishing
academic debate.

The volume starts off with the account given by Ramses Wessel and Tamara Takács of the
competence divide between the EU and the Member States in the field of external trade. Their
contribution also deals with other selected institutional issues, such as the enhanced role of the
European Parliament in this area.

Giuseppe Bianco tackles the much debated question concerning the relation between sovereign
debt crises and investment agreements – a question which, as the financial turbulence that
recently hit the Eurozone clearly demonstrates, is more likely to affect the EU than what one
may be inclined to believe at first sight.

Hannes Lenk addresses the potential relationship between investment tribunals and the European
Court of Justice. Recent jurisprudential developments (such as the much debated Opinion 2/13)
show that such relationship may turned out to be more troubled than predictable.

Investment tribunals are also the object of Luca Pantaleo’s contribution, which focuses on the
dispute settlement mechanism established by CETA, and compares it to other existing
investment tribunals with a view to offering a summary of the innovations brought by such
agreement.

Paolo Palchetti deals with the question concerning the allocation of international responsibility to
the EU and the Member States under EU investment agreements. His contribution also focuses
on the mechanism laid down by CETA, which is analysed in light of the rules concerning the
international responsibility of States and International Organisations.

The three concluding contributions all deal with the ostensibly controversial relation between
trade and non-trade related issues in EU external action.

5
More precisely on 16 September 2015.

8
More specifically, Wybe Douma examines how the EU promotes, or attempts to promote,
sustainable development through its trade and investment policy. He provides an overview of the
instrument adopted by the EU over the years, and suggests that are not entirely effective, despite
considerable effort made by EU institutions.

Daniel Behn, Ole Kristian Fauchald and Laura Letourneau-Tremblay focus on the specific case
concerning the promotion of renewable energy, where the tension between non-trade values and
trade has been particularly problematic precisely because of the international obligations of the
EU and of the Member States.

Finally, Sukma Dwi Andrina concludes the volume with an analysis concerning how investment
instruments relate to environmental and public health issues in general, and how CETA and EU-
Singapore Agreements deal with such issues in particular.

The idea behind this volume originated in an academic event that we, the editors, organised at
the Faculty of Law of the University of Oslo in October 2014. The event has been so successful
that there has already been an equally successful follow-up in October 2015, this time hosted by
the University of Luxembourg.

During the Oslo event, it clearly emerged the widespread conviction among the participants that
whatever one’s opinion might be on the specific technical issues at stake, the agreements that the
EU is about to conclude, or currently negotiating, manifestly represent a unique, unprecedented
opportunity for the Union to set international standards and promote its values on a global scale.
We could not agree more with this opinion. Indeed, the agreements in question offer an excellent
opportunity to the EU to reconcile the ostensible contradiction between the role of norm and
value setter, on the one hand, and the promotion of trade and investment interests, on the other.
Or, to put it different, between a value-based and an interest-based EU trade and investment
policy, and eventually EU foreign policy as such.

From this perspective, one should be mindful of the words of Tobias Asser, who, being a true
and passionate advocate of free trade, always considered the latter a ‘necessary condition for
prosperity and development’, rather than a threat thereof. 6 The EU’s own history is a textbook
illustration of Asser’s statement. After all, the biggest achievement of the EU is the EU itself, as
demonstrated by the success of its enlargement policy. The foundational idea on which the
Union was built, and continues to develop, is precisely that of promoting peace and prosperity by
way of fostering free trade among its members. It is therefore inevitable that EU trade and
investment policy is much more than just about trade and investment. For it is an external
projection of the Union’s own trajectory and mirrors the internal ambitions of the European
integration process.

This volume aims to give a contribution to the understanding of some problematic issues
concerning EU trade and investment policy that recent developments have brought into the open.
To this end, we would like to express our gratitude to Cristina Reul, a young but passionate
scholar whose support in the preparation of this volume has been invaluable.

6
See supra, note 2, 19.

9
Constitutional Aspects of the EU’s Global Actorness: Increased Exclusivity in
Trade and Investment and the Role of the European Parliament
Ramses A. Wessel and Tamara Takács*

1. Introduction
It is a truism that the first steps of the European Union as a global actor were in the area of trade.
For decades the EU’s external relations were the result of its developing Common Commercial
Policy (CCP) and the need for the Union (by then the Community) to become active
internationally in fields that internally no longer were in the hands of the Member States. The
‘exclusivity’ of this area forms a key source of the EU’s international actorness. At the same
time it has triggered the debate on whether the democratic control was moved from the Member
States to the Union to match the transfer of competences. This paper will not revisit that debate
but from a historical perspective; it will rather measure the role of the European Parliament
against the widening of exclusivity in relation to trade and investment in the post-Lisbon era.
The objectives set out in the European Treaties require the EU to take the role of an international
actor separate from its Member States. 1 At the same time, the basic assumption remains that
European external actions develop in a supportive parallelism to the EU’s internal policies. 2 This
has also for long been the position of the Court of Justice of the European Union (CJEU). 3 Part
of this contribution aims to demonstrate that the opposite can also be true, namely that the
Union’s participation in international relations reflects back onto its internal constitutional
landscape. 4
Irrespective of the difficulty to classify the European Union from the perspective of international
law, there is agreement that as an international actor, the EU is subject to international law in its
relations with third states and international organisations. 5 It is bound by the international

* Ramses A. Wessel is Professor of International and European Institutional Law at the Centre for European Studies,
University of Twente, The Netherlands; Tamara Takács is Senior Researcher in EU Law, Academic Coordinator of
the Centre for the Law of EU External Relations (CLEER), at the T.M.C Asser Instituut, The Hague, The
Netherlands.
1
See Art. 21 of the Consolidated Version of the Treaty on European Union, OJ [2012] C 326/13, 26 October 2012
[hereinafter TEU] for the Union’s general objectives for its external actions. Christina Eckes and Ramses A. Wessel,
“The European Union from an International Perspective: Sovereignty, Statehood, and Special Treatment”, in Takis
Tridimas and Robert Schütze (eds.), The Oxford Principles of European Union Law – Volume 1: The European
Union Legal Order (Oxford University Press 2016).
2
Consolidated Version of the Treaty on the Functioning of the European Union, Arts 3 and 216, OJ [2008] C 115, 5
September 2008 [hereinafter TFEU].
3
CJEU, Case 22/70, Commission v Council (ERTA), E.C.R. 263 (1971).
4
Cf. Christina Eckes, “External Relations Law: How the Outside Shapes the Inside”, in Diego Acosta Arcarazo and
Cian C. Murphy (eds.), EU security and justice law: after Lisbon and Stockholm, Modern studies in European law
42, 186-206 (Oxford, Hart Publishing 2014).
5
See for a recent survey of the many facets of the relationship between international and EU law: Ramses A.
Wessel, Close Encounters of the Third Kind: The Interface Between the EU and International Law after the Lisbon
Treaty, Sieps Report, Stockholm (2013).

10
agreements to which it is a party as well as to customary international law. 6 More recent
developments show that international law is capable of taking the differences between states and
international organisations into account. 7 However, against the background of this binary system
of rules third states continuously experience that the EU remains special. In certain areas, it holds
exclusive competence to act, which is unprecedented. Moreover, EU Member States, and in
particular national courts, accept that, in the end, they should give priority to EU law in cases of
a conflict with international law. 8
The current competences relating to trade and investment, and in particular the connection
between exclusivity and global actorness, will form the topic of section 2. Section 3 will be used
to address the key question in this paper and will assess the role of the European Parliament in
this area, both by analysing the relevant provisions and illustrating their impact by examples.
Some conclusion will finally be drawn in section 4.

2. Competences Relating to Trade and Investment

2.1 Types of External Competences
The issue of competence is undoubtedly one of the most challenging aspects of EU external
relations law. 9The starting point is the principle of conferral, and all TFEU provisions on
competence lead back to this essential principle stated in Article 5 in the Treaty on European
Union. This Article states that the limits of Union competences are governed by the principle of
conferral, meaning that it shall act only within the limits of the competences conferred upon it by
the Member States in the TEU and TFEU to attain the objectives set out therein. Any
competences not conferred upon the EU in the Treaties remain with the Member States (Articles
5(1) and 5(2) TEU). The TFEU then fleshes out Article 5 TEU in its Articles 2 – 6 TFEU
contained in Title I of Part I TFEU entitled “categories and areas of Union competence”. In other
words, these five TFEU provisions concern the existence and nature of EU competence to act.
In the present contribution we focus on the nature of EU competence and in particular on the
relation between exclusivity and global actorness. Article 2(1) TFEU explains what it means for
the EU to possess an exclusive competence (Member States can no longer act), paragraph 2
describes what it means for the EU and the Member States to share competences (member states
can act under certain conditions), and paragraphs 3 and 5 describes what we call coordinative,
6
More extensively: Idem, 106. See also clearly the judgment of the CJEU in case C-366/10, Air Transport
Association of America, American Airlines Inc., Continental Airlines Inc., United Airlines Inc. v. Secretary of State
for Energy and Climate Change, 21 December 2011,
http://curia.europa.eu/juris/document/document.jsf?text=&docid=117193&pageIndex=0&doclang=EN&mode=lst&
dir=&occ=first&part=1&cid=368298 (accessed 10 December 2015).
7
Respectively to be found at http://untreaty.un.org/ilc/texts/instruments/english/conventions/1_2_1986.pdf; and
http://untreaty.un.org/ilc/texts/instruments/english/draft%20articles/9_11_2011.pdf. Obviously, the extent to which
these instruments successfully take the complex position of international organizations into account may be subject
to debate.
8
See more generally Jan Klabbers, Treaty Conflict and the European Union (Cambridge University Press 2009).
9
See more extensively Chapters 1 and 4 in Bart Van Vooren and R.A. Wessel, EU External Relations Law: Text,
Cases and Materials (Cambridge University Press 2014).

11
supportive or supplementary competence. Paragraph 4 pertains to the Union’s Common Foreign
and Security Policy (CFSP), and upon careful reading actually concerns the existence of that
competence (‘The Union shall have competence…’), without saying anything on the nature of
the CFSP competence. The five areas in which the Union shall have exclusive competence are
listed in Article 3 TFEU: (a) customs union; (b) the establishing of the competition rules
necessary for the functioning of the internal market; (c) monetary policy for the Member States
whose currency is the euro; (d) the conservation of marine biological resources under the
common fisheries policy; (e) common commercial policy. Of these five policies, common
commercial policy is the only which is purely external in nature, though the other four policies
certainly have external aspects to them. In order to comprehend the move to exclusivity
addressed in the present contribution, it is important to note that exclusivity come in different
shapes and forms. First, exclusivity based directly on the interpretation of the provisions in the
EU Treaty. This is called a priori exclusivity or policy area exclusivity, because EU primary law
itself states that certain policy areas are to be exercised exclusively by the Union (Article 3(1)
TFEU).Second, exclusivity that follows from the adoption of internal Union measures, the
Member States being excluded to adopt rules which affect EU measures. This is called
conditional exclusivity or pre-emption, 10 because the Treaties and CJEU case-law lay out a
number of conditions for the Member States to lose their competence to act (Article 3(2) TFEU).
Third, exclusive powers can occur when absolutely indispensable to achieve EU Treaty
objectives, without there being internal EU measures. This is a small sub-category of conditional
exclusivity called exclusivity through necessity (Article 3(2) TFEU).
Trade and investment belong to the first category of a priori exclusive powers. As seen, the
Treaty of Rome only expressly attributed powers to the EEC in the sphere of Common
Commercial Policy and the conclusion of association agreements. These articles were entirely
silent on how they affected Member States’ foreign relations authority, and therefore the Court
was soon called upon to clarify the nature of EC external competence. This first occurred from
the early 1970s onwards in the sphere of international trade and fisheries. Through interpretation
by the Court of old article 113 TEEC, the common commercial policy became the prototype EU
external relations power which a priori excludes powers of the Member States.
It is important to note, however, that the dynamics inherent to EU law may place the distinction
between exclusive and shared powers into perspective. Indeed, in the famous ERTA judgment the
Court already found that when the Union adopts common rules, the Member States may no
longer undertake international commitments which would ‘affect’ those rules. 11 The EU’s
internal legislative action thereby pre-empts individual Member State external action, meaning
that the EU has an exclusive external power to the extent that its internal legislation would be
affected by such national action. This kind of exclusive external power is in fact nothing but the
conceptual counterpart of shared pre-emptive competences. Pre-emptive exclusivity is a
potential of a certain class of EU competences shared with the Member States. It has also been
the driving force behind the development of most external competences of the Union in the sense
that further internal integration has – through this mechanism – limited the individual or
collective external powers of Member States.

10
The term ‘conditional exclusivity’ comes from Paul Craig and Gráinne De Búrca (eds.), The Evolution of EU Law,
79 (2nd ed., Oxford University Press 2011).
11
CJEU, Case 22/70(ERTA), 263.

12
2.2 The Connection between Exclusivity and Global Actorness
As we have seen, the Treaty of Lisbon has certainly strengthened the EU’s ‘international
actorness’ and confirms the separate legal status of the EU. We have reminded our readers that
from a legal perspective it makes sense to continue distinguishing between the European Union
as an international organization of which states can be members, and the (member) states
themselves. In that sense the EU is something different than the collection of 28 states. It has a
distinct legal status, both in relation to its own members as well as towards third states. But,
importantly, the Member States may no longer be allowed to act once competences have been
transferred and have been placed ‘exclusively’ in the hands of the Union. It is a fact that “the
prominence of the international role of the EU has had an impact on the Member States and the
manner in which they exercise their powers as sovereign subjects of international law both in
terms of their interactions with third countries and their participation in international
organisations.” 12 As a consequence, depending on the legal existence, scope and nature of the
EU’s external powers, the Member States have to a lesser or greater degree a prominent role in
the formation and execution of international action in the relevant area. Conversely, the role of
the European Union (as the legal person) and its supranational institutions will then shift
depending on the policy area at issue. The relationship between the EU and international law is
based on this phenomenon and the Treaty of Lisbon has maintained this ambiguity, which
continues to make it difficult to live up to the demands of coherence and consistency in its
external relation policy, which can be found throughout the treaties (e.g. Article 21(3) TEU).
This means that also in practice the question remains when the European Union can act
internationally (next to or on behalf of its Member States) in international treaty negotiations and
in international organisations. 13 In October 2011 the EU agreed on a set of rules in this regard in
an internal document, 14 which also states that in issuing declarations on behalf of the European
Union account should be given to the division of competences.
The development of the EU as a global actor cannot be disconnected from the phenomenon of
exclusivity. In the words of Eeckhout “the case-law on exclusive external competences is a
remarkable achievement, which has enabled the EU to become an international actor, in
consonance with its internal competences, policies and objectives.” 15Traditionally, the Common

12
Panos Koutrakos, ‘In Search of a Voice: EU law Constraints on Member States in International Law-Making’, in:
Rain Liivoja and Jarna Petman (eds.), International Law-Making: Essays in Honour of Jan Klabbers, 209-224
(Routledge 2014).
13
See, for example, the recent discussions between the Council and the Commission on the composition of a
negotiating team in the framework of UN cooperation on mercury. Geert De Baere, Mercury Rising: the European
Union and the International Negotiations for a Globally Binding Instrument on Mercury, 37 European Law Review,
Issue 5, 640-655 (2012).
14
Council of the European Union, “EU Statements in multilateral organisations – General Arrangements”,
15901/11, 24 October 2011,
http://register.consilium.europa.eu/doc/srv?l=EN&f=ST%2015901%202011%20INIT (16 December 2015).
15
Piet Eeckhout, 'Exclusive External Competences: Constructing the EU as an International Actor', in Allan Rosas,
Egils Levits and Yves Bot (eds.), Court of Justice of the European Union - Cour de Justice de l’Union Européene,
The Court of Justice and the Construction of Europe: Analyses and Perspectives on Sixty Years of Case-law - La

13
Commercial Policy has been the area allowing the Union (and earlier the Community) to forge
its international actorness. In terms of policy fields covered by the new EEAS, the current
structure is a typical EU-type compromise. It is not an EU institution, which significantly
constrains its power to legally influence EU external decision-making. Furthermore, the EU
external action service has no say whatsoever in the Common Commercial Policy, where the
Commission remains very firmly in the driver’s seat.
The reason for the exclusivity in this area is well-known and is phrased by Eeckhout as follows:
“In light of the strong link with the common/internal market, the common commercial policy has
to be uniform, and this uniformity requires exclusive EU competence. AETR exclusive implied
powers are no more than a particular form of pre-emption: it is to safeguard the effectiveness and
uniformity of internal EU legislation, that the Member States are precluded from entering into
international commitments which could affect such legislation or alter its scope.” 16
As we have seen, trade and investment policy are areas which owe their exclusivity directly to
the Treaty. 17 The consequence is that when the Union adopts common rules, the Member States
may no longer undertake international commitments which would ‘affect’ those rules. The EU’s
internal legislative action thereby pre-empts individual Member State external action, meaning
that the EU has an exclusive external power to the extent that its internal legislation would be
affected by such national action (cf. the ERTA judgement18). On the basis of Article 3(2) TFEU
this implies that the Union (1) shall have exclusive competence for the conclusion of (2) an
international agreement when its conclusion is provided for in a legislative act of the Union or
(3) is necessary to enable the Union to exercise its internal competence, or (4) in so far as its
conclusion may affect common rules or alter their scope.
CCP exclusivity dates back to Opinion 1/75, where the CJEU argued that the Member States had
set up a Common Market, and the CCP was conceived to defend the common external interests
of the Community in its operation. If the Member States could continue to act alongside the
Community to defend their own interests, the essence of pooling interests at the supranational
level would be impinged: “It cannot therefore be accepted that, in a field such as that governed
by the understanding in question, which is covered by export policy and more generally by the
Common Commercial Policy, the Member States should exercise a power concurrent to that of
the Community, in the Community sphere, and in the international sphere.” 19 It was thus up to
the Community to act globally and not just in relation to its own Member States. In relation to
ERTA, Post spoke of the CJEU as forcefully promoting “the emergence of a distinctive
transnational entity endowed with forms of authority that are both significant and unique”. 20 This
observation is equally valid for case law on the scope of the CCP and subsequent rulings.

Cour de Justice et la Construction de l’Europe: Analyses et Perspectives de Soixante Ans de Jurisprudence, 613-
636, at 635 (T. M. C. Asser Press 2013).
16
Eeckhout, Exclusive External Competences, 634.
17
Article 2(1) TFEU:“When the Treaties confer on the Union exclusive competence in a specific area, only the
Union may legislate and adopt legally binding acts, the Member States being able to do so themselves only if so
empowered by the Union or for the implementation of Union acts.” See also Art. 3(1) TFEU mentioned above.
18
CJEU, Case 22/70(ERTA).
19
Opinion 1/75, ECR 1975-01355 (1975).
20
Robert Post, 'Constructing the European Polity: ERTA and the Open Skies Judgments', in Miguel Poiares Maduro
and Loïc Azoulai (eds.), The Past and Future of EU Law, 234 (Hart Publishing 2010).

14
Through its purposive and dynamic interpretation the Court strengthened the Community as an
international actor with its wide common commercial policy, which excluded Member State
action in the field.
Post-Lisbon, the scope of CCP’s exclusivity was even widened. It now falls completely within
exclusive Union competence, including those services sectors (health, culture, education) where
the European Union had only supporting competence to act internally. 21 Internal voting rules,
more specifically Article 207(4), however, indicate a carving out of veto power by Member
States in the areas of cultural and audiovisual services, as well as social, education and health
services, of which trade related aspects should be decided unanimously in Council. Together
with the reference to “commercial aspects of intellectual property”, the CCP is not only linked to
the GATT, but also to the two other key WTO agreements, the General Agreement on Trade in
Services (GATS) and the Agreement on Trade Related Aspects of Intellectual Property Rights
(TRIPS). This is of course a huge step ahead in comparison to the ECJ’s rather conservative
reading on the nature of CCP in its Opinion 1/94, in which exclusivity for the GATS and TRIPS
related issues was excluded and hence mixity of competences confirmed. 22
At the same time foreign direct investment (FDI) was brought under the exclusive competence of
the Union. International investment operates in a different way than traditional trade.
International trade agreements deal with the exchange of goods and cross-border services
between two or more states (or the EU for that matter), whereas international investment
agreements aim to protect foreign investment in a specific country. In addition, while trade
agreements today often take a (regional) multilateral form, agreements regarding investment
continue to exist mostly in a bilateral format. However, it is often difficult to separate the two
areas, which makes it important that both are covered by the CCP.
That this may have serious consequences for a large number of existing international agreements
is exemplified by the so-called, BITs (Bilateral Investment Treaties) cases. 23 The EU’s presence
in the field of foreign investment not only forms an example of new international ambitions, but
ironically also triggered the traditional reflex: an acceptance of the authority of international law,
but at the same time a preservation of the autonomy of EU law. Although the cases differ from
for instance the PFOS case, 24 they seem to reflect a similar trend: exclusivity by stealth. The
outcome of the BITs cases is that all (over 1000) BITs will have to be renegotiated in order to
prevent incompatibilities with EU law. As indicated by Dimopoulos, the long-term objective of
the EU is to replace Member State BITs with EU Investment Agreements. In the meantime an

21
Cf. Marise Cremona, Balancing Union and Member State Interests: Opinion 1/2008, Choice of Legal Base and
the Common Commercial Policy Under the Treaty of Lisbon, 35 European Law Review, 678-694 (2010).
22
CJEU Opinion 1/94, See Meinhard Hilf, The ECJ’s Opinion 1/94 on the WTO – No surprise, but wise?, 6
European Journal of International Law, 245-259 (1995).
23
CJEU, Case C-205/06 Commission v Austria ECR I-1301 (2009); Case C-249/06 Commission v Sweden ECR I-
1335 (2009); Case C-118/07 Commission v Finland ECR I-10889 (2009).
24
CJEU, Case C-246/07, Commission v. Sweden (PFOS), ECR I-3317 (2010).

15
authorization system should combine the validity of the BITs that were concluded on the basis of
international treaty law with the primacy of EU law. 25
In relation to our democratic concerns (see section 4), it is good to remember that CCP is not just
a key external relations policy, but in substantive terms, is at the heart of the European
integration project and a logical consequence of the interaction between internal and external
developments: e.g. the European Economic Community as a customs union and the rules of free
trade laid down in the GATT. Indeed, “European integration itself was launched in the shadow
of the pre-existing General Agreement on Tariffs and Trade (GATT), and continues to be shaped
within the more comprehensive WTO framework.” 26 Also in quantitative terms, CCP cannot be
ignored: most of the agreements concluded between the EU and third states concern trade or at
least deal with trade-related issues. 27Since CCP (unlike for instance CFSP or the AFSJ) has been
part and parcel of the European integration process from the outset, a vast amount of legislation
and case law exists. At the same time the EU considers CCP to be an instrument of foreign
policy and has continuously linked it to development issues, environmental policies or CFSP.
Importantly, association and cooperation agreements opening up the Internal Market to countries
in the extended European- and its neighbouring region serve as important tools of influencing
political developments, 28 for some countries with the hope of eventual EU membership. This is
reflected by the listing of trade policy among the various external action objectives in current
Article 21 TEU. Article 206 TFEU explicitly refers to ‘the Union’ rather than to the Member
States and, thereby, underlines that the development of world trade has shifted from the Member
States to the European Union.
The underlying principles of CCP are mentioned in Article 207 TFEU and are elaborated upon in
specific instruments. Article 207(1) provides:
“The common commercial policy shall be based on uniform principles, particularly with regard
to changes in tariff rates, the conclusion of tariff and trade agreements relating to trade in goods
and services, and the commercial aspects of intellectual property, foreign direct investment, the
achievement of uniformity in measures of liberalisation, export policy and measures to protect
trade such as those to be taken in the event of dumping or subsidies. The common commercial
policy shall be conducted in the context of the principles and objectives of the Union's external
action.”
Even if trade forms the core element of the Union’s external relations (being part of ‘The
Union’s External Action’ in Part Five TFEU), CCP is to be formulated and implemented with the

25
A. Dimopoulos, ‘The BITs Cases and their Practical and Doctrinal Implications’, in J. Díez-Hochleitner et al.
(eds.), Recent Trends in the Case Law of the Court of Justice of the European Union (2008-2011), 737-758 (La Ley
2012).
26
Joris Larik, ‘Much More Than Trade: The Common Commercial Policy in a Global Context’, in Malcoln Evans
and Panos Koutrakos (eds.), Beyond the Established Legal Orders: Policy Interconnections Between the EU and the
Rest of the World , 13-45 at 16 (Hart Publishing 2011).
27
Cf. Mario Mendez, The Legal Effects of EU Agreements: Maximalist Treaty Enforcement and Judicial Avoidance
Techniques (Oxford University Press 2013).
28
See Karolien Pieters, The integration of the Mediterranean neighbours in the Internal Market (T.M.C Asser Press
2010), Steven Blockmans and Adam Łazowski (eds.), The European Union and its Neighbours- A Legal Appraisal
of the EU's Policies of Stabilisation, Partnership and Integration (T.M.C Asser Press 2006).

16
general objectives and principles of its external action in mind. These are expressed, next to
Article 21 TEU, also in a more succinct form in Article 3(5) TEU:
“In its relations with the wider world, the Union shall uphold and promote its values and interests
and contribute to the protection of its citizens. It shall contribute to peace, security, the
sustainable development of the Earth, solidarity and mutual respect among peoples, free and fair
trade, eradication of poverty and the protection of human rights, in particular the rights of the
child, as well as to the strict observance and the development of international law, including
respect for the principles of the United Nations Charter.”
This formed a reason for Dimopoulos to argue that “[…] the Lisbon Treaty marks a new era for
the orientation of the CCP. It signals the transformation of the CCP from an autonomous field of
EU external action, subject to its own rules and objectives, into an integrated part of EU external
relations, characterized by common values that guarantee unity and consistency in the exercise of
Union powers. […] In particular, the references to fair trade and integration to the world
economy next to liberalization illustrate that trade liberalization should not be seen any longer as
a self-determining objective, but it should be regarded within the broader context of economic
and social development objectives.” 29

3. Democratic Control over Trade and Investment

The Lisbon Treaty had significant impact on the institutional structure in decision-making
relevant to trade matters, including the adoption of internal measures (and thus on the
implementation of trade and investment policy), the negotiation procedure for trade and
investment agreements as well as the ratification of these agreements. The significant change lies
with the serious upgrade of the European Parliament − the only directly elected EU institution −
resulting in an increased involvement as well as consultation and information rights in the trade
negotiation procedures, the need for Parliamentary consent, as well as its co-legislator role,
together with the Council, in relation to the adoption of trade measures. These reforms have long
been called for, and were in fact already included in the ill-fated Constitutional Treaty. 30
The below overview will assess the reforms on the basis of selected examples from the first
(albeit not full) legislative term after the entry into force of the Lisbon Treaty. While before the
entry into force of the Lisbon Treaty, the EP had no formal role and legal or political clout in the
negotiation process of trade agreements, a number of initiatives offered informal but gradually
institutionalised involvement. The ‘Luns-Westerterp’ procedure provided for the Commission’s
contact with Parliament, so as to inform and consult the latter. 31 An Interinstitutional framework
29
A. Dimopoulos, The Effects of the Lisbon Treaty on the Principles and Objectives of the Common Commercial
Policy, 15 European Foreign Affairs Review, 153–170 (2010).
30
See pleads for more Parliamentary involvement put forward by Rafael Leal-Arcas, Theory and practice of EC
External Trade Policy (Cameron and May 2008), and Markus Krajewski, External Trade Law and the Constitution
Treaty: Towards a Federal and More Democratic Common Commercial Policy?, 42 Common Market Law Review,
91-127 (2005).
31
See Laura Richardson, The Post-Lisbon Role of the European Parliament in the EU’s Common Commercial
Policy: Implications for Bilateral Trade Negotiations, College of Europe, Department of EU International Relations
and Diplomacy Studies, 9 (2012); Stephen Woolcock, The Treaty of Lisbon and the European Union as an Actor in

17
agreement from 2005 further expressed the aspirations of information provision toward the EP
by the Commission “both during the phase of preparation of agreements and during the conduct
and conclusion of international negotiations”, and doing so “in a timeframe that allows
Parliament to reflect and express its views and for the Commission to take the latter into
account.” 32 The EP’s emerging position in trade negotiations was expressed through its INTA
committee, specialised in trade matters, which was set up in the same year, marking the
increasing interest and status in this policy area.
The Interinstitutional Agreement between the Commission and EP already in 2006 33revealed an
increase of information rights for the EP and this was further strengthened in a subsequent
Interinstitutional Agreement in 2010. 34 These information and consultation modalities were then
institutionalised and formalised in the Lisbon Treaty. Thus, in the negotiations and conclusions
of international agreements, including trade and investment agreements, the EP “shall be
immediately and duly informed”. 35 As to the specific phases in the negotiation procedure, the
EP’s role varies. It remains important to note that Parliament cannot assign binding guidelines
with regard to the adoption of negotiating mandates. 36 The drafting of negotiation directives rests
with the Commission (in form of recommendations) with the Council adopting the negotiation
directives, authorising the negotiations and, through its Trade Policy Committee – formerly
known as Article 133 Committee – assisting the Commission during the negotiations. One could
regard this as being to the disadvantage of the EP, however, it has been noted that despite the
explicit authorisation power, the EP has means and tools of ‘soft power’, in the form of “non-
binding Parliamentary resolutions, hearings, opinions and questions to the Commission” 37 to
indicate political preferences that can influence the content of negotiations. 38Raising the red
flags at such early stages reveal issues that can be deemed to be of most concern to the
constituency and relevant stakeholders whose concerns Parliament can thus display. Such clear
indication of preferences took place, for example before the approval of negotiating mandate
with Japan, where Parliament raised concerns in relation to Japan’s willingness to remove trade
barriers, and asked to obtain information from the Council before the launch of the
negotiations. 39 Similarly, and perhaps even more prominently, the EP had very early on voiced
its opinion so as to shape the negotiating mandate for Transatlantic Trade and Investment

International Trade, ECIPE Working Paper, No. 1,European Centre for International Political Economy
(2010),http://www.ecipe.org/media/publication_pdfs/the-treaty-of-lisbon-and-the-european-union-as-an-actor-in-
international-trade.pdf (accessed 16 December 2015).
32
Richardson, The Post-Lisbon Role of the European Parliament, 9.
33
OJ C 117E. 18 May 2006, 21-23.
34
See Annex 3, point 3. OJ L 304, 20 November 2010, 47-62.
35
Art. 218(10) TFEU.
36
In contrast to the US Congress, see Stephen Woolcock, ‘EU Trade and Investment Policymaking after the Lisbon
Treaty’, 45 Intereconomics, 22-25 at 23 (2010) http://www.ceps.eu/system/files/article/2010/02/22-25-
Woolcock_0.pdf (accessed 16 December 2015).
37
Laura Richardson citing David Kleimann, Taking Stock: EU Common Commercial Policy in the Lisbon Era,
CEPS Working Document, No. 346, Centre for European Policy Studies (CEPS), 7
(2011),http://www.ceps.eu/book/taking-stock-eu-common-commercial-policy-lisbon-era (accessed 16 December
2015).
38
Richardson, The Post-Lisbon Role of the European Parliament, 9.
39
‘EU negotiations with Japan’, Library Briefing, 17 October 2012.

18
Partnership (TTIP), the agreement currently under negotiation between the EU and the United
States. The EP thus inter alia called called for the tackling of regulatory convergence, the
inclusion of environmental and labour aspects of trade and sustainable development, the
inclusion of financial services, it underlined the sensitivity of agricultural sector and audiovisual
services, and in general terms emphasised the need for the Commission to engage with a wide
range of stakeholders in a continuous and transparent manner. 40
Through the actual negotiations, the above noted continuous information and consultation right
brings the EP into the forefront and in fact turn it into a player with an increasingly accepted
status in trade matters, albeit largely informally. While the 2010 Interinstitutional Agreement
offers the possibility of granting observer status to MEPs who form part of Union delegations to
meetings of bodies set up by multilateral international agreements involving the EU 41– similar to
the involvement of the EP in the workings of the WTO 42–direct participation in actual trade
negotiations is conditioned by the Commission’s authorisation, and subject to legal, technical
and diplomatic possibilities. It can be noted that Parliament’s role has been most remarkable
through the discussions revolving around linkages between social, labour, human rights and
environmental as well as sustainable development on the one hand, and market access offered to
negotiating partners, on the other hand. 43 Indeed, it is through these linkages, connecting general
public concerns and the EU’s economic-commercial interests of free trade and investment and
liberalisation, that the EP’s involvement has even to a large extent changed the character of CCP.
The active channeling of public concerns via public debates, questions, (non-binding) resolutions
and the increased contact between the EP, lobbyists and their constituents more than hint at an
increase of the democratic legitimacy of trade negotiations. In fact, some had voiced concerns in
relation to the EP’s input concerning trade negotiations, the latter being often seen as
technocratic trade negotiations – conducted by the ‘technocratic Commission’ – and they warned
against the ‘politicisation’ of the process, and the negative impact of the EP’s involvement on the
traditionally secretive negotiations as well as the risk of unduly blocking and/or throwing back
the course of negotiations. 44 It has been noted, however, that due to the “restricted dissemination
of the content of trade negotiations”, the technocratic character has not been in general,

40
‘European Parliament resolution of 23 May 2013 on EU trade and investment negotiations with the United States
of America’, 23 May 2013; ‘European Parliament resolution of 23 May 2013 on EU trade and investment
negotiations with the United States of America’, 23 May 2013.
41
Arts 25-26, OJ L 304, 20 November 2010.
42
Marika Armanoviča and Roberto Benidini, The Role of the EP in Shaping the European Union’s External Trade
Policy after the Entry Into Force of the Lisbon Treaty, Directorate-General for External Policies, Policy Department,
7 (2014), http://www.europarl.europa.eu/RegData/etudes/briefing_note/join/2014/522336/EXPO-
JOIN_SP%282014%29522336_EN.pdf (accessed 16 December 2015).
43
Lore Van den Putte, Ferdi De Ville and Jan Orbie, The European Parliament’s New Role in Trade Policy:
Turning Power Into Impact, CEPS Special report, No. 89, Center for European Policy Studies (2014),
http://www.ceps.eu/book/european-parliament%E2%80%99s-new-role-trade-policy-turning-power-impact
(accessed 16 December 2015).
44
See, for example, Anne Pollet-Fort, Implications of the Lisbon Treaty on the External Trade Policy, EU Center in
Singapore, Background brief No. 2, 3 (2010).

19
modified. 45Nevertheless, it was exactly such restriction to the dissemination of content, that has
spurred intense debate in relation to the ongoing TTIP negotiations calling for increased
openness and transparency for the negotiation rounds, and seeking information to the public. As
a result of such calls, the Council has made the negotiating mandate public. 46 The pressure for
making TTIP negotiations more transparent came from the European Ombudsman, 47 but also
from Parliament’s side, condemning the ‘reading room arrangement’ for MEPs to look into
negotiation documents, and through a noticeable general assertiveness in gaining information
and looking into documents of ongoing negotiations toward international
agreements. 48Parliament will continue to have an important role in channeling public concern in
the TTIP negotiations and expressing these in its recommendations to the Commission.
Accordingly, Parliament’s recommendations to the Commission, adopted on 8 July 2015, call for
a high protection of consumer data and health and safety standards, a special treatment for
sensitive agricultural and industrial products and ‘no agreement’ in too diverging areas such as
cloning, GMOs and the authorisation of chemicals. 49 Another controversial topic, dispute
settlement, was also addressed by this recommendation: Parliament rejected the idea of private
arbitration for disputes under TTIP and called for or a mechanism which would be “subject to
democratic principles and scrutiny” and where cases would be dealt with by “publicly appointed,
independent professional judges [in] public hearings”. 50Consequently, the Commission proposed
an ‘investment court system’, to be set up jointly with the US, including a panel of 15 judges and
an arbitration tribunal. The introduction of such an investment court, would “enshrine
governments’ rights to regulate and ensure transparency and accountability”. 51These impactful
actions by Parliament may add to its democratic control over the course of negotiations and, if
used consistently and to the desired result, even shape the EU’s (normative) character as
international actor.

45
Armanoviča and Benidini, The Role of the EP in Shaping the European Union’s External Trade Policy, 7.In
addition, the Interinstitutional agreement between Council and Parliament calls for respect of confidentiality
INSERT.
46
Council of the European Union, TTIP Negotiating Mandate Made Public, Press Release of 9 October 2014,
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/145014.pdf (accessed 17 December
2015).
47
European Ombudsman, Ombudsman asks Council and Commission to publish more TTIP documents, Press
release 17/2014, 31 July 2014, http://www.ombudsman.europa.eu/en/press/release.faces/en/54636/html.bookmark
(accessed 17 December 2015).
48
See MEP Hautula’s call for more transparency in the negotiations and information sharing toward Parliament:
Lack of transparency in TTIP - a case for the ECJ? Reading Room arrangement may contradict the EU Treaties, 10
July 2014, http://ttip2014.eu/blog-detail/blog/TTIP%20ECJ%20Transparency.html (accessed 17 December 2015).
The cases mentioned are: ECJ (Judgment (First Chamber) of 3 July 2014 in Case C-350/12, Council of the European
Union v Sophie in't Veld and Judgment (Grand Chamber) of 24 June 2014 in Case C-658/11 European Parliament v
Council (Mauritius-case)).
49
Julie Levy-Abegnoli, TTIP: EU parliament vote paves way for new ISDS, The Parliament Magazine, 8 July
2015,https://www.theparliamentmagazine.eu/articles/news/ttip-eu-parliament-vote-paves-way-new-isds (accessed
17 December 2015).
50
European Parliament resolution of 8 July 2015 containing the European Parliament’s recommendations to the
European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP).
51
See European Commission, Commission proposes new Investment Court System for TTIP and other EU trade and
investment negotiations, Press release, 16 September 2015.

20
Another novelty introduced by the Lisbon Treaty is the European Parliament’s status as co-
decider in relation to the CCP. Replacing the previous consultation procedure (where the EP’s
position did not bind the Commission and Council), now the ordinary legislative procedure
applies, which implies that internal measures on CCP issues need the support of a majority in the
EP. On the basis of Article 207(2) TFEU, “The European Parliament and the Council, acting by
means of regulations in accordance with the ordinary legislative procedure, shall adopt the
measures defining the framework for implementing the common commercial policy.” This
ordinary legislative procedure was for example used for the reform of the Generalised System of
Preferences (GSP+) in October 2012 (entering into force in January 2014). Concerning
investment, the EP’s involvement in the shaping of EU investment policy, has been significant in
highlighting the major public policy and non-economic concerns in this new policy area of
CCP.52
The EP’s consent for concluding all international agreements that cover a subject matter to which
the ordinary legislative procedure (Article 218(6)) applies, brings all trade and investment
agreements under the realm of this potentially powerful Parliamentary tool. Yet, the EP’s
consent does not extend to amending trade agreements, and is not needed for provisional
application of international agreements or temporal suspension of an agreement. Council
decisions to authorise the provisional application of an agreement can be taken on a mere
proposal from the Commission without the need to ask for prior parliamentary consent (Article
218(3) TFEU). The latter rule is of particular importance in relation to CCP, as indicated by the
‘Banana-Agreement’ between the EU and a number of Latin-American States which effectively
ended the infamous and long trade dispute. The EU was only able to conclude this deal with the
possibility to put it into early provisional application in late 2009. The Latin American countries
dropped their WTO cases against the EU in return for easier access to the EU market. On 3
February 2011, the European Parliament then gave its consent to the text. Yet, another example
reveals that the (rejection of) consent can serve as a powerful tool for Parliament and “enhance
its credibility as veto actor” 53 the rejection of the Anti-Counterfeiting Trade Agreement (ACTA)
was due to the secrecy of negotiations and the significant public campaign against the agreement
that the lack of transparency has ignited. 54
Because of the current broad scope of the CCP in combination with its exclusive nature,
international trade and investment agreements can be concluded by the Union alone, and
consequently do not need to be ratified by the Member States, unless a mixed agreement was
concluded. It is therefore up to the European Parliament to exercise the necessary democratic
52
For a detailed overview of the EU Institutions’ position on reconciling investment protection with the host states’
regulatory power and public policy choices – an issue of foremost interest for Parliament – see Anna De Luca,
Integrating Non-trade Objectives in the EU Oncoming Investment Policy: What Policy Options For The EU?, 4
CLEER Working Papers, 65-81(2013).
See Regulation (EU) No1219/2012 on the European Parliament and of the Council of 12 December 2012
establishing transitional arrangements for bilateral agreements between Member States and third countries.
53
Van den Putte, De Ville and Orbie, The European Parliament’s New Role in Trade Policy, 1.
54
See Cremona noting that Parliament already in 2010 raised the issue of lack of information over the
negotiating text in a resolution and in a subsequent declaration on ACTA’s potentially objectionable content. M.
Cremona, ‘The EU’s international regulatory policy, democratic accountability and the ACTA: a cautionary
tale’, in Marise Cremona and Tamara Takács, Trade liberalisation and standardisation – new directions in the ‘low
politics’ of EU foreign policy, CLEER Working Papers 6, 57, 70 (2013).

21
control. It has been noted that doing away with the mixity of competence adds to the efficiency
of decision-making and thus the policy’s implementation, and consequently may enhance the
EU’s actorness, in as much as ratification by national parliaments is not a requirement anymore,
which can be more appealing for negotiating partners. 55

4. Conclusion
The above analyses underline that trade and investment have become more ‘exclusive’ since the
Lisbon Treaty. We have also seen that this has enhanced the role of the EU as a global actor. In
terms of the democratic assessment of the area, and given the fact that national parliaments have
lost influence, the question we raised was whether this development resulted in more
involvement of the EP in relation to trade and investment. While it is expected that real impact of
Parliament’s Lisbon-enhanced role will truly be visible in the more advanced stages of trade
negotiations with important trade partners in the years to come, 56 the EP has on various instances
used its democratic control and oversight function, and does so in increasingly assertive manner.
This is proven by the rejection of ACTA and the way it asserts its information rights in various
areas of international negotiations, with the notable example of the TTIP negotiations. Even
though the EP (unlike the US Congress) does not have a ‘mandating right’ at the kick-off of
negotiations, it appears that in some negotiations Parliament has very early on laid down issues
of public concern that it wishes to shape the agreements (cf. Japan and TTIP). With respect to
TTIP, it resulted in an important change in the EU’s position with regard to the issue of dispute
settlement under the agreement, doing away with ISDS and suggesting a more transparent
investment court system. It is yet to see just how assertive Parliament will act relative to the ‘red
flags’ it raised in along the negotiations when the agreements are up for ratification and consent.
Parliament has definitely become a lobby point for governments and interest groups, which may
increase the democratic legitimacy of well-thought through trade agreements and does not appear
to diminish the EU’s actorness in the eyes of its partners to an unpredictable partner, whose final
move (i.e. consent of the EP) cannot be estimated after years of negotiations.
While doing away with mixity can be seen as a sign of the Union’s maturity in this area, future
cases will have to reveal to which extend the EP is able to make full use of its powers. In that
sense, it will be crucial that both the Commission and the Council find ways to genuinely share
information with Parliament so as to avoid situations comparable to what happened with the
rejection of ACTA. At the same time – and because of the increasing exclusivity of the area – the
EP will have to position itself further as the guardian of European citizens’ interests, and add
voice to the (European) public concerns in trade and investment negotiations. This has been
absolutely obvious with TTIP and will play an important role in how influential Parliament is in
the conduct of CCP and in shaping the ‘new generation’ trade agreements engaged in by the EU.
Finally, through a more pronounced status and say in the shaping of trade and investment
negotiations, Parliament contributes to fulfilling the EU’s objectives of norm-promotion in
external relations so as to advance the values prescribed in Article 207 TFEU on the international
plane.
55
See Stephen Woolcock, The Treaty of Lisbon and the European Union as an Actor in Trade, ECIPE Working
Paper 1 (2010).
56
Van den Putte, De Ville and Orbie, The European Parliament’s New Role in Trade Policy.

22
The European Union, Sovereign Debt Crises and Investment Agreements
Giuseppe Bianco*

1. Introduction
The on-going global financial crisis has hit Europe in an especially significant manner. It has
demonstrated that even at the heart of the Eurozone, a country can find itself in the need for a
sovereign debt restructuring. The role of the European Union as an international actor can be
considerably impacted.
International law does not regulate the way in which sovereign debt restructurings are to be
performed (Section 2). This legal vacuum is unsatisfactory for both debtors and creditors. The
latter have attempted to obtain their capital and interest by any means, and have thus recently
resorted to investor-State arbitration (Section 3). Bilateral Investment Treaties (BITs) and Free
Trade Agreements (FTAs) signed by European countries could become the grounds for
arbitration and endanger sovereign debt restructurings, even though some obstacles would need
to be overcome (Section 3).

2. The Unregulated Field of Sovereign Debt Restructurings

International law is a body of rules that has come nowadays to regulate many aspects of life,
often in a very detailed manner. Nevertheless, there is one issue for which public international
law does not provide an exhaustive framework, but only sparse norms at most: sovereign debt
restructuring.
Sovereign debt is the portion of public debt which is issued or guaranteed by the government or
the central bank of a country. It can be owed to States, to international organizations, to banks, or
to bondholders. Sovereign debt restructurings have been defined as “changes in the originally
envisaged debt service payments, either after a default or under the threat of default”. 1 They take
place when a country is unable to repay its debt to creditors.
The failure by international law to regulate sovereign debt restructurings has been seen as one of
“the most glaring gaps in the international financial architecture”. 2It might indeed seem peculiar
that an extremely delicate problem has not come under the radar of international law. However,
the history is long and full of ups and downs.
After the Second World War and until the 1980s, the situation was relatively straightforward.
States mostly financed themselves through loans from other countries, international

* PhD Fellow, University of Oslo – Université Paris 1 Panthéon-Sorbonne, giuseppe.bianco@jus.uio.no

1
Federico Sturzenegger, Jeromin Zettelmeyer, Debt Defaults and Lessons from a Decade of Crises, 3 (Cambridge
MA, MIT press 2007).
2
Kevin P. Gallagher, The New Vulture Culture: Sovereign debt restructuring and trade and investment treaties,
IDEAs Working Paper no. 02/2011, 7, http://www.ase.tufts.edu/gdae/publications/GallagherSovereignDebt.pdf
(accessed 24 August 2015).

23
organisations and bank syndicates. Since the amount of the loans was very significant, banks
formed groups and lent States the money.
When governments could not repay the capital they had borrowed, they usually adhered to a
procedure that has gradually come into being. First of all, international intergovernmental
organizations’ claims have consistently been preferred over those of any other creditor. The
organizations concerned are those traditionally implicated in the provision of loans to States: the
International Bank for Reconstruction and Development, regional development banks, the
International Monetary Fund (IMF), the Bank for International Settlements. It has been affirmed
that the preferred status of such creditors stems from a customary rule. 3 The reasons to justify
this treatment were essentially that the claims were based on public international law (i.e. on
treaties); that non-reimbursement would have affected the very existence of such institutions; and
that access to financial markets would have become much costlier if the debtor country defaulted
with regard to these international institutions.
Secondly, with regard to the portion of debt owed to other States, the Paris Club has established
itself over time as the principal forum for negotiating restructurings. 4Countries in financial
difficulties request a restructuring. Creditor States then find a consensus after private discussions,
and stipulate an Agreed Minute. The latter includes the terms of debt relief. The debtor country
has a right to be heard. The main characteristics of the functioning of such an informal group are
a case-by-case approach, the operation by consensus, solidarity, conditionality (i.e. having a
programme in force with the IMF) and comparability of treatment (which means that the debtor
must seek a restructuring on comparable terms from all creditors).
Yet, in other instances, the negotiation framework was different: for example, the Organization
for Economic Cooperation and Development (OECD) served as forum for the Turkish debt
restructuring in the 1980s, since both the debtor and the creditor States were members of this
organization. 5 In the case of India and Pakistan, aid groups or consortia were specifically
created. 6 This demonstrates that the forum used for public creditors has taken many different
forms over time and presents a high level of informality.
Thirdly, with regard to the debt owed to private banks, the latter have organised themselves in a
host of different manners. Starting from the 1970s, the London Club has acquired an important
role in negotiations on sovereign debt vis-à-vis the main international banks. 7 It consists of ad
hoc negotiating committees of major bank lenders, without a predetermined membership. It
applies the same operative approaches as the Paris Club. The restructuring operates by agreement
only.

3
Dominique Carreau, "Le rééchelonnement de la dette extérieure des Etats", Journal du droit international, 15.
4
The Paris Club is an informal group of public creditors begun in 1956. It currently comprises 19 permanent
members, which hold a considerable portion of sovereign debt. Other creditor States can participate on an ad hoc
basis. The Club has a general secretariat composed by high civil servants of the French Treasury. See
http://www.clubdeparis.org/ (accessed 6 January 2016).
5
Ibid., 19.
6
Ibid., 19.
7
See Michael Waibel, “Bank Insolvency and Sovereign Insolvency”, in Rosa Maria Lastra, Cross-Border Bank
Insolvency, 544 pp., Chapter 13, §13.73 (Oxford University Press 2011).

24
The practice of private creditors’ committees established at the request of the debtor was
attempted in 1982 by Mexico with thirteen banks forming a "Bank Advisory Group for
Mexico" 8, and by Brazil to put in place a committee with all its commercial banks creditors. The
attempt was not successful and has not been repeated by other debtors. 9 The banks taking part in
this type of committees were not agents of the other banks, but merely “communication links”, in
order to avoid any liability vis-à-vis the others. 10 The decision-making procedure followed the
unanimity principle.
Starting in the 1990s, sovereign debt has consisted ever more of international securities. Whereas
this disintermediation phenomenon has permitted large flows of external financing (especially
for emerging countries), it has also introduced considerable challenges for debt restructurings.
This is because the sovereign debtor is faced with an atomised creditor community, with
extremely diverse interests and bonds issued in different jurisdictions. Coordination amongst
them is much more difficult than within the restricted sovereign creditors’ or commercial banks’
groups. 11 Since bonds and similar securities represent a growing portion with respect to
intergovernmental or bank loans, sovereign debt restructurings have become ever more
cumbersome to perform, leaving both debtors and creditors with often insurmountable
problems. 12
The involvement of the IMF in sovereign debt crises cannot be overestimated. It has been
described as “ultimate judge of the appropriate mix between the magnitude of a heavily indebted
developing country's adjustment effort and the commitment to it of new external finance for its
remaining balance of payments deficit”. 13 This role is related to three functions it fulfils: the
provision of financial assistance, the surveillance of the international monetary and financial
system and of the exchange rates policies of its members, and the provision of technical and
financial services to its members. 14
In particular, two of the IMF’s policies have acquired a role of paramount importance with
regard to sovereign debt restructuring: lending into arrears and financing assurances. These two
IMF policies –crucial for sovereign debt restructuring – are tightly interconnected and have
undergone parallel evolutions. Their current state testifies to the difficulties encountered by the
Fund to ensure the protection of its own financial interests on the one hand and on the other the
power to assist a country in need without being at the mercy of private creditors. A revision of
the policies on lending into arrears, most welcome 15, was foreseen in 2008 16, but has been
8
Enrique Castro Tapia, Mexico's Debt Restructuring: The Evolving Solution, 23 Columbia Journal of Transnational
Law, no.1, 1, 5 (1984).
9
Lee Buchheit, Advisory Committees: What’s in a Name?, 10 International Financial Law Review, no. 1, 9 (1991).
10
Tapia, Mexico's Debt Restructuring: The Evolving Solution, 5.
11
Anne Krueger, New Approaches to Sovereign Debt Restructuring: An Update on Our Thinking, speech delivered
at the “Conference on Sovereign Debt Workouts: Hopes and Hazards”, Washington DC, 1 April 2002,
http://www.imf.org/external/np/speeches/2002/040102.htm (accessed 24 August 2015).
12
See Engela C. Schlemmer, “The Enforcement of Sovereign Debt”, in Mario Giovanoli, Diego Devos (eds.),
International Monetary and Financial Law: The Global Crisis, 500 pp., 418-448 (Oxford University Press 2011).
13
E. Walter Robichek, The International Monetary Fund: An Arbiter in the Debt Restructuring Process, 23
Columbia Journal of Transnational Law, 143-146 (1984).
14
Hassane Cissé, “Le fonds monétaire international et l'endettement extérieur des Etats” in Dominique Carreau and
Malcolm N. Shaw (eds.), La dette extérieure / The external debt, The Hague Academy of International Law, 278
(1995).
15
Paul Bedford and Gregor Irwin, “Reforming the IMF’s lending-into-arrears framework”, 12.
16
IMF, Decision No. 14036-(08/01), 27 December 2007.

25
postponed sine die, since its revisions will be adopted “as needed”. 17 Without an international
procedural framework, the IMF has gradually adapted its policies to the changing context of
financial markets, but often has to face the veto power of private creditors.
Against the background of a lacking general framework for sovereign debt restructurings,
sovereign debtors and their creditors are faced with an extremely high degree of legal
uncertainty. Each government acts in a different way, depending on the economic, political,
social and legal circumstances.
In order to perform a restructuring, governments generally tend to negotiate with a group of
(more or less self-appointed) representatives of bondholders. Negotiations take place in the
shadow, or sometimes after the occurrence, of a default. When an agreement is reached, the legal
means to effect a restructuring are mainly exit consents and collective action clauses.
An “exit consent” is “a feature of a debt exchange offer that requires the consent of tendering
bondholders to change some of the terms of bond indentures as a condition to participate in the
offer”. 18 The offer is subjected to the condition of the attainment of a threshold of creditors’
participation. The latter increases as the importance of the clauses concerned increases. For
clauses on jurisdictional immunity and other clauses, the majority required is approximately 66
2/3 %; for clauses not related to the payment, but which impact on it (e.g. the applicable law), the
threshold is higher; for clauses directly linked to payment terms, all the bondholders have to
accept the exchange for it to become effective. 19

Creditors who participate in the exchange accept the amendment of the clauses of the bond from
which they “exit”. Thus, by virtue of the “exit consent”, if the lower threshold for the
modification of non-payment terms is achieved, those bondholders who have not participated in
the exchange will come to hold a financial instrument with conditions less favourable than
before. 20 Thanks to the decision of the debtor and of the creditors who have agreed, the bonds
have lost some advantages they previously featured. Therefore, such bonds will have a lower
price on secondary markets or, at any rate, make the recovery of the debt more uncertain because
of the elimination of warranties originally stipulated. This in turn “makes the old instruments a
whole lot uglier”. 21

There is some element of coercion involved in the use of exit consents. 22 This can be the case
when some bondholders might feel obliged to accept an exchange only because they would be
left with a worthless instrument in the alternative. However, with the objective of a balanced
restructuring in mind, the exit consent technique does offer important incentives for bondholders

17
IMF, Decision No. 14235-(09/1), 31 December 2008.
18
Kenneth Daniels and Gabriel G Ramírez, Debt Restructurings, Holdouts, and Exit Consents, 3 Journal of
Financial Stability, Issue 1, (2007).
19
Rodrigo Olivares-Caminal, Legal Aspects of Sovereign Debt Restructuring, 444 pp., 118 (Sweet & Maxwell
2009).
20
IMF, Involving the Private Sector in the Resolution of Financial Crises. Restructuring International Sovereign
Bonds, 11, https://www.imf.org/external/pubs/ft/series/03/IPS.pdf (accessed 25 August 2015).
21
International Law Association, Committee on International Monetary Law, Final Report, 6 (2012).
22
Lee C. Buchheit, G. Mitu Gulati, Exit Consents in Sovereign Bond Exchanges, 48 UCLA Law Review, 11,
(2000).

26
to take part in the exchange. Yet, substantively, it does not necessarily provide a balanced result
to the negotiations.
The spread of “exit consents” has to be correlated to the perception that US law would have
prohibited bond amendments absent the agreement of all bondholders, just like for bonds issued
by corporations. 23 Consequently, only the “exit consent” mechanism was deemed admissible for
sovereign bonds featuring New York law as their applicable law.

Collective action clauses comprise four different types of clauses, which deal with: collective
representation; majority action; sharing; acceleration. 24 The majority action clause is the most
interesting one, since it aims at solving the most important difficulty of any sovereign debt
restructuring: the problem of reaching an agreement with an extremely wide population of
bondholders. This clause consists of a “majority amendment clause permitting amendments of
payment terms with the approval of a supermajority of bondholders”. 25 The majority needed to
modify “reserve matters” (which include payments terms, such as change in payments dates,
reduction in principal or interest, change in currency, and any instruction to the representative so
as to exchange or convert the bonds) varies across jurisdictions.

3. The Resort to Investor-State Arbitration

Even when a sovereign debt restructuring is achieved thanks to the participation of a high
percentage of bondholders, legal uncertainty for the debtor is not over. Creditors who have not
agreed to the haircut may seek any means available to them in order to recover the interests and
capital according to the original bonds.
Whilst litigation before the domestic court identified by the forum selection clause of the bond is
rather common and well-known (but definitely not less troubling 26), a more recent feature is
represented by the resort to international investor-State arbitration. This occurred for the first
time with Argentina, which defaulted on its sovereign debt in December 2001.
In 2005, Argentina launched a first swap of its debt, giving a choice to bondholders as regards
the form of the new debt they would obtain. Securities linked to the new bonds were dependent
on the country’s GDP. Moreover, Law 26,017 or “Emergency Law” was enacted. It provided
that those bonds which were not exchanged in the agreement proposed by the government could
not be allowed to be exchanged in the future. Furthermore, the government was inhibited from
reaching any judicial, quasi-judicial, or private transaction with regard to those bonds. 27

23
The Trust Indenture Act of 1939 actually only applied to corporate bonds issued to the public, but the
documentation standard was followed also for sovereign bonds. Buchheit, Gulati, Exit Consents in Sovereign Bond
Exchanges, 10.
24
Olivares-Caminal, Legal Aspects of Sovereign Debt Restructuring, 111.
25
Group of Ten, Report of the G-10 Working Group on Contractual Clauses, 3, http://www.bis.org/publ/gten08.pdf
(accessed 25 August 2015).
26
For an instance of such domestic litigation: John Crook, Second circuit affirms orders requiring Argentina to treat
restructured and holdout bondholders equally; Argentina Seeks Certiorari in related extraterritorial discovery case,
107 American Journal of International Law, Issue 4, 930-933 (2013).
27
Art. 3 of the Law: “Prohíbese al Estado nacional efectuar cualquier tipo de transacción judicial, extrajudicial o
privada, respecto de los bonos a que refiere el artículo 1º de la presente ley”. (Unofficial translation provided by

27
76.15% of the holdings took part in the exchange, which settled on 2 June 2005. 28Many of those
who did not agree (whose amount of outstanding debt held totalled US $25 billion29), sought to
obtain the payment of capital and interest before courts in New York, Germany, and Italy. 30
Claimants encountered difficulties in enforcing their favourable judgements: the Argentinian
government refused to pay and it was hard to find attachable Argentine assets to levy against 31;
as it was remarked, litigation had “yet to yield a penny” 32.

Amongst others, a group of Italian bondholders did not agree to the unilateral exchange offer
proposed by the Argentinian government. On 14 September 2006, the law firm White & Case
filed the Request for Arbitration with ICSID on behalf of some 180,000 Italian bondholders. 33
They based their filing on the Agreement between the Argentine Republic and the Republic of
Italy on the Promotion and Protection of Investments, signed in Buenos Aires on 22 May 1990
and entered into effect on 14 October 1990 (hereinafter, the Argentine-Italy BIT).
In 2010 Argentina made another attempt to complete its outstanding debt restructuring. The new
offer therefore purported to “restructure and cancel defaulted debt obligations of Argentina
represented by Pre-2005 Eligible Securities, to release Argentina from any related claims,
including any administrative, litigation or arbitral claims and to terminate legal proceedings
against Argentina in respect of the tendered Eligible Securities in consideration for the issuance
of New Securities and, in certain cases, a cash payment”. 34 The 2005 Emergency Law was
suspended for the time of the offer. Sixty-six per cent of the hold-out creditors reacted
favourably to the offer. 35 Also a portion of the Italian bondholders decided to participate in the
2010 Exchange Offer and thus withdrew from the ICSID proceedings.

The Abaclat and others v. Argentina case was thus the first ICSID arbitration to deal with a
sovereign debt workout. Heretofore, there has been a Decision on Jurisdiction and Admissibility
(with a Dissenting Opinion by Georges Abi-Saab) and numerous procedural orders. The case is
still pending as to the merits phase.
In its Decision, the majority of the Tribunal affirmed that bonds constituted ““obligations” and/or
at least “public securities” in the sense of Article 1(1) lit. (c)” of the Argentina-Italy BIT, and

Argentina to the Tribunal: “The national Government is precluded from entering into any type of judicial, extra-
judicial or private settlement with respect to the bonds to which Article 1 of the present law refers”), Law 26,017.
28
Mauro Angelo Megliani, Debitori Sovrani E Obbligazionisti Esteri, 98 (Giuffrè 2009).
29
Joanna Simoes, Sovereign Bond Disputes before ICSID Tribunals: Lessons from the Argentina Crisis, 17 Law and
Business Review of the Americas, Issue 4, 683, 684 (2011).
30
Arturo C. Porzecanski, From Rogue Creditors to Rogue Debtors: Implications of Argentina’s Default, 6 Chicago
Journal of International Law, 311, 327 (2005).
31
Karen Halverson Cross, Investment Arbitration Panel Upholds Jurisdiction to Hear Mass Bondholder Claims
against Argentina, 15 ASIL Insight, Issue 30 (2011), http://www.asil.org/insights/volume/15/issue/30/investment-
arbitration-panel-upholds-jurisdiction-hear-mass-bondholder (accessed 25 August 2015).
32
Anna Gelpern, What Bond Markets Can Learn From Argentina, 24 International Financial Law Review, Issue 4,
19 (2005).
33
Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and
Admissibility,§§90-91 (2011).
34
Exchange Offer Prospectus, S-5 (2010)
http://www.mecon.gov.ar/finanzas/sfinan/documentos/us_prospectus_%28version_ingles%29_30042010.pdf(access
ed 25 August 2015).
35
Cross, Investment Arbitration Panel Upholds Jurisdiction to Hear Mass Bondholder Claims against Argentina, 2.

28
they are consequently a form of protected investment. Furthermore, the Tribunal held that the
inclusion of forum selection clauses could not be read as limiting “the existence and/or validity
of Argentina’s consent to ICSID arbitration”. 36 Contrary to the respondent’s and the dissenting
arbitrator’s arguments, the majority upheld the jurisdiction of the ICSID Tribunal over the claims
put forward by the Italian bondholders, according to the Argentina-Italy BIT and the ICSID
Convention.
The involvement of investor-State arbitration for disputes related to the Argentinean sovereign
debt restructuring was replicated by two other cases: AmbienteUfficio S.p.A. and others v.
Argentine Republic 37and Giovanni Alemanni and others v. Argentine Republic. 38As regards the
AmbienteUfficio dispute, a Decision on Jurisdiction and Admissibility was issued on 8 February
2013: as in Abaclat, the majority of the Tribunal agreed to hear the claims, leaving the
jurisdiction and admissibility analysis for each claimant to a later stage. On 28 May 2015,
however, the proceedings were discontinued after a suspension of more than six months. 39
For Giovanni Alemanni, the Decision on Jurisdiction and Admissibility of17 November 201440
sided with AmbienteUfficio. It found that bonds can be considered as investments (para. 296),
while the issue of there being a single dispute, the exact nature of the claimants’ entitlements as
well as their being made in the territory of Argentina were left for the merits stage. This case,
alongside Abaclat, is now pending on the merits.
A similar resort to investor-State arbitration has already partly materialised with respect to the
Greek sovereign debt restructuring of 2012. The most important steps of the latter will be
sketched.
In July 2011 European policymakers considered a voluntary debt restructuring of Greek debt,
described as “private sector involvement” (“PSI”). In February 2012, when European leaders and
the Greek government initiated the implementation phase of the formally voluntary restructuring,
rather high losses for private sector holders (“a nominal haircut amounting to 53.5%” 41) were
deemed necessary in order for Greece to return to debt sustainability. 42 Therefore, a tough debt
restructuring, albeit described as “voluntary”, was indispensable. Yet, the legal framework in
which it was to be performed was not carefully envisaged 43: “[n]one of the mechanisms put in

36
Abaclat, Decision, §499.
37
AmbienteUfficio S.p.A. and others v. Argentine Republic, ICSID Case No.ARB/08/9 (Order of discontinuance
issued in 2015).
38
Giovanni Alemanni and others v. Argentine Republic, ICSID Case No.ARB/07/8 (Registered in 2007, proceeding
pending).
39
Order of Discontinuance of the Proceeding, 28 May 2015.
40
The Tribunal is composed of Mr. J. Christopher Thomas, Karl-Heinz Boeckstiegel, and Sir Franklin Berman
(President). Luke Eric Peterson, “Argentina faces a third treaty claim by hold-out bond-holders; Experts differ as to
prospects”, IA Reporter, (2008) https://www.iareporter.com/articles/argentina-faces-a-third-treaty-claim-by-hold-
out-bond-holders-experts-differ-as-to-prospects/ (accessed 25 August 2015).
41
Eurogroup Statement, (21 February 2012),
http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ecofin/128075.pdf (25 August2015).
42
Michael Waibel, Steering Greece's Debt Restructuring Through the CDS Quicksand, 1, 2 (2012)
http://ssrn.com/abstract=2017772(accessed 25 August 2015).
43
Lee C. Buchheit, G. Mitu G. Gulati, Greek Debt - The Endgame Scenarios, (2011)
http://ssrn.com/abstract=1807011 (accessed 25 August 2015).

29
place so far at EU level address[ed] directly what would be the complexities and magnitude of a
sovereign restructuring in the euro area”. 44

Holders of Greek bonds constituted a highly heterogeneous group, and this was a cause for
concern. Out of the total €206 billion of government bonds, only about €120 billion were in the
hands of large institutional investors such as banks, pension funds, and insurance companies,
according to data provided by J.P. Morgan. 45 These entities would arguably have incentives to
co-operate with Greek and European institutions, as well as with the IMF. Whereas asset
managers, sovereign wealth funds, and retail investors, who accounted for roughly €80 billion of
bonds, aimed essentially at maximising their profits to whatever extent possible. Since European
policymakers had excluded the possibility of a default 46, this second category of investors did
not have before itself the menace of the non-service of the debt in case it refused to agree on the
offer. Thus, a significant “free rider” issue arose: non-institutional bondholders had an incentive
for not consenting to the swap and obtain payment of their capital and accrued interests from
Greece, whilst bigger investors were to suffer from the haircut. 47
It is important to notice that approximately 90% of the total was governed by Greek law. The rest
was issued under the law of another jurisdiction, mostly English law. 48 In order to perform the
swap, the Greek parliament enacted Law 4050/2012 and added Collective Action Clauses
(CACs) to bonds issued under Greek law. 49As mentioned above, these clauses make a decision
taken by the majority of bondholders binding on the whole group. 50 Such modifications could
obviously not be made to the other bonds, outside of the Greek legislature’s purview. In April a
restructuring of approximately €199 billion, 96.9% of the total face amount of bonds eligible to
participate in the invitations, was announced. 51

In light of the new, promising avenue opened by the Abaclat Decision (and the others that
followed), non-participating bondholders in the Greek restructuring then considered attempting

44
Deborah Zandstra, The European Sovereign Debt Crisis and Its Evolving Resolution, 6 Capital Markets Law
Journal, Issue 3, 285, 315 (2011).
45
Mitu G. Gulati, Jeromin Zettelmeyer, Making a Voluntary Greek Debt Exchange Work, 7 Capital Markets Law
Journal, Issue2, (2012).
46
The Greek public debt management agency however attempted to hint at future difficulties for non-participants by
stating that Greece “does not contemplate the availability of funds” to pay non-participating creditors (Greek Public
Debt Management Agency, Press Release, 6 March 2012). Waibel, Steering Greece's Debt Restructuring Through
the CDS Quicksand, 25.
47
Gulati, Zettelmeyer, Making a Voluntary Greek Debt Exchange Work, 3.
48
Lee C. Buchheit, Mitu G. Gulati, How to Restructure Greek Debt, 1, 2 (2010),
http://ssrn.com/abstract=1603304(accessed 25 August 2015).
49
Greek Bondholder Act enacted by the Greek Parliament on 23 February 2012, Law 4050/2012.
50
The legal literature concerning CAC is extensive; for an introduction, see the “Report of the G-10 Working Group
on Contractual Clauses” of September 2002 at http://www.bis.org/publ/gten08.pdf(accessed 25 August 2015) and
“The Design and Effectiveness of Collective Action Clauses. Prepared by the IMF Legal Department” of June 6,
2002 at http://www.imf.org/external/np/psi/2002/eng/060602.pdf(accessed 25 August 2015); Frank Elderson,
Marino Perassi, Collective Action Clauses in Sovereign Foreign Bonds: Towards a More Harmonised Approach, 4
European Banking and Financial Law Review (Euredia), (2003).
51
Hellenic Republic, Ministry of Finance, Press Release, 1, (25 April 2012), http://bit.ly/1EWiHH8 (accessed 25
August 2015).

30
to recover their money via arbitration. Indeed, law firms immediately advised holders of Greek
and other Eurozone countries’ bonds on how to best make use of BITs and ICSID. 52
A first claim was brought to the ICSID: Poštovábanka, a.s. and ISTROKAPITAL SE v. Hellenic
Republic, which was registered on 20 May 2013. 53The definition of investment in Article 1(1) of
the Slovakia-Greece BIT did not include “obligations”, differently from the Argentina-Italy BIT.
In its award of 9 April 2015, the Tribunal had to assess whether the bonds could be considered as
“loans” or “claims to money”. It performed a thorough legal analysis of sovereign bonds, which
it distinguished from interests purchased by bondholders on secondary markets. 54Greece had a
contractual relationship with the Participants and the Primary Dealers on primary markets, and
not with Poštovábanka. Thus, the claimant did not have an investment within the meaning of the
Greece-Slovakia BIT. 55
The Tribunal ventured even further. After establishing there was no investment under the
relevant BIT, the majority of the Tribunal ruled that the instruments concerned would not qualify
as investment under Article 25 of the ICSID Convention. If an objective test were adopted, the
aspect of a contribution to an economic venture would be problematic. Such contribution needs a
“process of creation of value, which distinguishes it clearly from […] a subscription to sovereign
bonds which isalso a process of exchange of values i.e. a process of providing money for a given
amount of money in return”. 56 The majority also recalled the distinction between sovereign
bonds linked to public works or services and those used for general public funding.

Furthermore, the element of risk would not be present in the purchase of interests on sovereign
bonds. The latter would undoubtedly involve commercial and sovereign risks. Nevertheless, such
instruments do not feature “a risk inherent in the investment operation in its surrounding –
meaning that the profits are not ascertained but depend on the success or failure of the economic
venture concerned”. 57
Consequently, the interests on Greek bonds purchased by Poštovábanka did not qualify as
investments under the relevant BIT, and would not have qualified under Article 25 of the ICSID
Convention. The Award stands in clear contrast with respect to the previous decisions on the
Argentinian sovereign debt restructuring.

4. Limitations to Investor-State Arbitration

On the one hand, the involvement of investor-State arbitration allows bondholders to access a
very efficient dispute resolution mechanism, which might also guarantee better results as regards

52
Specifically on BITs signed by Greece, see Christian Hofmann, Greek Debt Restructuring and Abaclat v.
Argentina – The impact of Bilateral Investment Treaties (BITs) on the Greek default, Transnational Notes -
Reflections on Transnational Litigation and Commercial Law, NYU Center for Transnational Litigation and
Commercial Law, (2012), http://blogs.law.nyu.edu/transnational/2012/10/greek-debt-restructuring-and-abaclat-v-
argentina-the-impact-of-bilateral-investment-treaties-bits-on-the-greek-default/ (accessed 25 August 2015).
53
Poštovábanka, a.s. and ISTROKAPITAL SE v. Hellenic Republic, ICSID Case No. ARB/13/8, Award (2015).
54
Ibid.
55
Agreement between the Government of the Hellenic Republic and the Government of the Czech and Slovak
Federal Republic for the Promotion and Reciprocal Protection of Investments dated June 3, 1991.
56
Ibid., 361.
57
Ibid., 370.

31
enforcement of favourable decisions. On the other hand, the systemic implications for sovereign
debt restructuring processes are rather detrimental. Such negotiations could become more
difficult, since non-participating creditors will be aware of the opportunity to initiate arbitral
proceedings if they are not content with the bond exchange proposed.
However, there exist several limitations to the recourse to investor-State arbitration for matters
related to sovereign debt restructuring. Currently, such obstacles concern, amongst others, the
definition of investment, the territorial link, and the mass claim nature of some arbitral disputes.
Prospectively, they might be strengthened by a different drafting of future BITs/FTAs.
In these remarks, the focus will be on the ICSID system of investor-State arbitration. As is well-
known, other arbitration rules and fora are also available, such as the United Nations
Commission on International Trade Law (UNCITRAL) and the Stockholm Chamber of
Commerce. Nevertheless, ICSID accounts for the vast majority of registered claims. 58 Moreover,
several BITs only allow investors to use ICSID facilities. Furthermore, the sovereign debt
restructuring cases have so far all arisen before ICSID tribunals.
Firstly, the inclusion of sovereign bonds in the definition of investment of Article 25 of the
ICSID Convention is highly controversial. Whilst the majority of the Tribunal in Abaclat opined
that the ICSID Convention does not contain its own definition of investment, and thus fully
relied on the list contained in the Italy-Argentina BIT, the Abaclat Dissenting Opinion and the
Poštovábanka Award reiterated that Article 25 of the Washington Convention refers to an
objective notion of investment. The latter would not extend to sovereign bonds, which are
considered by some authors as ordinary commercial transactions rather than investments. 59
In this regard, the text of the BIT (or of the FTA) might play an ever more important role. Most
of the treaties ratified by Eurozone countries seem not to expressly exclude sovereign debt
restructuring issues from their scope nor portfolio investments or government bonds from their
definition of investment. 60
The increased use of CACs does not necessarily shield sovereign debt restructurings from
arbitral proceedings. Since Collective Actions Clauses deal with contractual rights, they do not
prevent investors from invoking the violation of treaty rights. 61In spite of Greece’s recourse to
CACs, holdout bondholders could obtain a favourable ICSID award.
Secondly, the question of the territorial link between the sovereign bond and the respondent
country might yield to diverging interpretations. Whilst the majority in Abaclat affirmed that
security entitlements partook of the same economic operation as the bond issuance and that the
decisive criterion was that Argentina had benefited from the investment, it might be argued (as in
Poštovábanka) that the sale on secondary markets is intrinsically different from the relationship
between a private party and a host country that an investment would require.

58
62% as of the end of 2013. UNCTAD, Recent Developments in Investor-State Dispute Settlement (ISDS), IIA
Issue Note, No. 1, (UNCTAD/WEB/DIAE/PCB/2014/3), 9 (2014).
59
Waibel, Opening Pandora's Box: Sovereign Bonds in International Arbitration, 722.
60
Daniella Strik, Investment Protection of Sovereign Debt and Its Implications on the Future of Investment Law in
the EU, 29 Journal of International Arbitration, 183, 185-186 (2012).
61
Ioannis Glinavos, Haircut Undone? The Greek Drama and Prospects for Investment Arbitration, 5 Journal of
International Dispute Settlement, Issue 3, 475, 480-481 (2014).

32
Thirdly, in the case of Abaclat the dispute was initiated by approximately 180,000 holders
(nowadays shrunk to about 60,000). This mass claim nature was heatedly debated before the
Tribunal, and it has been provoking important difficulties for the management of the
proceedings 62, especially in terms of conflict of interests as to the keeping of the bondholders’
databases. More importantly, it begs the question of the State consent to such type of disputes
being heard by a Tribunal constituted on the basis of the ICSID Convention. This might
discourage future mass claims by huge groups of bondholders. On the other hand, this problem
does not arise for other disputes, such as AmbienteUfficio and Giovanni Alemanni (multi-party
disputes in the view of the Tribunal) and the Poštovábanka, a.s. and ISTROKAPITAL SE case,
with two claimants.
In the near future, the involvement of investor-State arbitration in sovereign debt restructuring
might be prevented more effectively. In the recent past, some countries have modified their BITs
so as to exclude sovereign bonds from the definition of protected investment. Otherwise, they
have excluded them from the jurisdiction of investor-State arbitral tribunals. This occurred for
instance with the US-Uruguay BIT in 2005 (with its Annex G ‘Sovereign Debt Restructuring’),
with the Peru-Singapore FTA in 2008 (with its Chapter 10, art. 10.18, ‘Public Debt’), with the
Canada-Colombia FTA (with its art. 838, footnote 11). 63

A similar path seems to be the one envisaged by the European Union in the drafting of its free
trade agreement with Canada. 64 According to the Consolidated CETA Text published on 26
September 2014:

“Annex X: Public Debt

1. No claim that a restructuring of debt issued by a Party breaches an obligation

under Sections [Non-Discriminatory Treatment, Investment Protection] may be
submitted to, or if already submitted continue in, arbitration under Section 6
[Investor-State Dispute Settlement] if the restructuring is a negotiated
restructuring at the time of submission, or becomes a negotiated restructuring after
such submission, except for a claim that the restructuring violates Article X.6
[National Treatment] or Article X.7 [Most-Favoured Nation].

2. Notwithstanding [ISDS: Article X.22 Submission of a Claim to Arbitration,

para 4], and subject to paragraph 1 of this Annex, an investor of another Party
may not submit a claim under Section 6 [Investor-State Dispute Settlement] that a
restructuring of debt issued by a Party breaches an obligation under Sections
[Non-Discriminatory Treatment, Investment Protection] (other than Article X.6
[National Treatment] or Article X.7 [Most-Favoured Nation]) unless 270 days

62
The high number of procedural orders and statements of dissent are indicative in this regard. See the Available
Documents on the Investment Treaty Arbitration website: http://www.italaw.com/cases/35 (accessed 25 August
2015).
63
Examples are taken from: Strik, Investment Protection of Sovereign Debt and Its Implications on the Future of
Investment Law in the EU, 185.
64
On the EU’s strategy in the drafting of investment chapters in FTAs, see Filippo Fontanelli and Giuseppe Bianco,
Converging Towards NAFTA: An Analysis of FTA Investment Chapters in the European Union and the United
States, 50 Stanford Journal of International Law, Issue 2 (2014).

33
 have elapsed from the date of receipt by the respondent of the written request for
consultations pursuant to [Article X.18 Consultations].

3. For the purposes of this Annex, ‘negotiated restructuring’ means the

restructuring or rescheduling of a debt instrument that has been effected through
(i) a modification or amendment of such debt instrument, as provided for under its
terms, or (ii) a comprehensive debt exchange or other similar process in which the
holders of no less than 75 percent of the aggregate principal amount of the
outstanding debt under such debt instrument have consented to such debt
exchange or other process”. 65

The wording of paragraph 3 would arguably shield sovereign debt restructurings effected
through a recourse to Collective Action Clauses (in its first hypothesis) or through a bond swap
to which a supermajority has agreed (in its second hypothesis).
The EU negotiating text for the Transatlantic Trade and Investment Partnership contains an
Annex II on public debt with similar wording. The major differences in the third section are
highlighted hereafter:

“For the purposes of this Annex, ‘negotiated restructuring’ means the restructuring
or rescheduling of debt instruments issued by a Party that has been effected
through (i) a modification or amendment of such debt instruments, as provided for
under their terms and governing law, or (ii) a debt exchange or other similar
process in which the holders of no less than 66% of the aggregate principal amount
of the outstanding debt under such debt instruments subject to restructuring,
excluding debt held by that Party or by entities owned or controlled by it, have
consented to such debt exchange or other process. For greater certainty, debt
issued by a Party means debt issued by any administrative level of a Party
including with respect to the European Union a government of or in a European
Member State or its sub-federal level”. 66

The innovations are thus mainly four. The first is the acknowledgment that an excluded
restructuring can be performed in accordance with the governing law of the bond,
although the procedure was not foreseen in the contract terms. This is what happened in
Greece, where the domestic law was modified to insert retroactive CACs. The second
modification concerns the lowered threshold to exempt restructurings. This has been
brought from 75% to 66% of the aggregate principal amount of the outstanding debt.
This should increase the chances of shielding restructurings from ISDS. Thirdly, the
TTIP explicitly excludes from the debt those bonds owned by the issuing government or
entities controlled by it. This is known as disenfranchisement and routinely features in
modern CACs. 67 Fourthly, the clause clarifies the entities whose restructured debt can be
65
Consolidated CETA text, http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf (accessed 25
August 2015).
66
“Commission draft text TTIP - Investment. Transatlantic Trade and Investment Partnership. TRADE IN
SERVICES, INVESTMENT AND E-COMMERCE. CHAPTER II - INVESTMENT”.
http://trade.ec.europa.eu/doclib/docs/2015/september/tradoc_153807.pdf (accessed 12 January 2016).
67
Cf., for instance, the Common Terms of Reference of the Euro area Model CAC 2012, Art. 2.7(c),
http://europa.eu/efc/sub_committee/pdf/cac_-_text_model_cac.pdf (accessed 12 January 2016).

34
excluded from the dispute resolution mechanism of the TTIP. With respect to the EU, the
entities are the governments of a member State or of a sub-federal administration.

Another option would aim at shielding sovereign assets from attachment by holdout creditors.
One of the ways in which such objective could be attained at the Eurozone level would be an
amendment to the Treaty on the European Stability Mechanism (ESM), as advocated by
Buchheit, Gulati and Tirado. 68The idea is that when a country receives financial assistance from
the ESM and performs a debt restructuring, those creditors who hold out from it could not then
attempt to enforce their bonds on assets located in the territory of the Eurozone.

5. Conclusion

This article has analysed the problematic relationship between sovereign debt restructuring and
investment agreements in the case of the Eurozone. The financial crisis has brought to the
spotlight the vulnerabilities of developed countries within the European currency area. It has
even prompted Greece to perform a sovereign debt restructuring in 2012.

The question of sovereign debt restructuring is not fully regulated by international, or even
European Union, law. Over time, several practices have been followed, which include the
preferred status of debt owed to intergovernmental organisations, the resort to the Paris Club for
negotiating debt owed to other countries, and the London Club for syndicated bank loans. With
the increase in debt in the form of bonds, exit consents and collective action clauses have been
used. Yet, the restructuring has proven much more complicated to carry out.

The Argentinean crisis started in 2001 has led to a major development in this area. Investor-State
arbitral tribunals have been called upon to hear disputes brought by non-participating
bondholders. This opened the way for creditors dissatisfied with the Greek restructuring to resort
to this new avenue – so far, in vain.

However, several issues would limit the likelihood of such a development. The inclusion of
sovereign bonds as protected investment is disputed, and so is the territorial link with the host
country. Furthermore, mass claims are not necessarily within the competence of an ICSID
tribunal or within the consent given by the signatory State. Finally, some governments might
consider modifying the text of BITs or FTAs in order to exclude sovereign bonds from the
definition of investments or exclude restructurings from arbitration. The Consolidated Text of
the CETA and the EU negotiating text for the TTIP signal a (nuanced) move in this direction,
within the more general overhaul in the European Union’s approach to investor-State dispute
settlement. 69

68
Lee C. Buchheit, G. Mitu Gulati and Ignacio Tirado, The Problem of Holdout Creditors in Eurozone Sovereign
Debt Restructurings, 8 (2013), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2205704 (accessed 25 August
2015).
69
European Commission, Concept Paper “Investment in TTIP and Beyond. The Path for Reform”, (2015)
http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF (accessed 25 August 2015).

35
All in all, it might be argued that the materialisation of the sovereign debt crisis in the heart of
the Eurozone has had an impact on the European Union’s strategy as an actor in international
investment. The problems currently faced by Argentina before the ICSID have made European
countries more aware of the potential dangers hidden in their BITs. This has in turn led to a
careful drafting of the CETA and the TTIP, and potentially of all the other major FTAs to follow.

36
Investment arbitration under EU investment agreements: is there a role for
an autonomous EU legal order?
Hannes Lenk *

1. Introduction

The European Union (EU) is taking increasingly more space on the international arena. It is
unsurprising, therefore, that the Lisbon Reform introduced further changes and commitments on
the road for the EU to become a global actor. 1 Apart from numerous references to the United
Nations and its Charter, the Treaties provide for general principles in Articles 3(5) and 21 of the
Treaty on European Union (TEU), which ought to be respected in EU external action. 2 Article
6(2) TEU reflects the firm commitment of the EU to accede to the European Convention for the
Protection of Human Rights and Fundamental Freedoms (ECHR), the first international
organization to participate as signatory in that regime. Most importantly, however, the expansion
of EU exclusive competence under the common commercial policy (CCP) leaves no doubt that
the EU intends to play a leading role in international trade policy. Whilst there remains a strong
commitment to the multilateral trading system (i.e. the EU’s role within the WTO), the Lisbon
Treaty clearly endorses the EU’s strategic interest in extending its bilateral network and
positioning the EU as an actor in international investment law, through the inclusion of foreign
direct investment (FDI) into the list of exclusive competences under Article 207 of the Treaty on
the Functioning of the European Union (TFEU).

At the same time that the proliferation of international legal regimes and their judicial bodies
requires an increasingly more integrationist approach of the EU that, as an actor in international
law, must accommodate for interaction with these regimes, the Court of Justice of the European
Union (hereinafter CJEU or the Court) is required to protect the integrity of the autonomous EU
legal order from external influences. With that being said, the recent Opinion 2/13 3 of the CJEU
on the draft accession agreement of the EU to the ECHR has once again put into question
whether a leadership position in global governance can be combined with an autonomous legal
order after all. Here, the Court reiterated the same pluralistic rhetoric 4 it had already used in
Kadi, 5 which depicts the EU as an autonomous legal regime that exists independently of

*
PhD Candidate, University of Gothenburg (Hannes.Lenk@law.gu.se). The author wishes to thank Prof. Christophe
Hillion, Prof. Per Cramér, Joel Dahlquist, Carl Lewis and Birte Böök for the inspiring comments and fruitful
discussions on the initial idea and early drafts of this paper.
1
Bart Van Vooren, Steven Blockmans and Jan Wouters, The EU's role in global governance : the legal dimension
(1st ed., Oxford University Press 2013).
2
Ramses A. Wessel, Close Encounters of the Third Kind: The Interface between the EU and International Law after
the Treaty of Lisbon (SIEPS Report, 2013:8, 2013).
3
Opinion 2/13, Accession of the European Union to the European Convention for the Protection of Human Rights
and Fundamental Freedoms (18 December 2014), nyr.
4
“Pluralistic” is used here in the sense of dualistic with an emphasis on separateness and distinction rather than
integration into the international legal order as it is developed by De Búrca, see Gráinne de Búrca, ‘The European
Court of Justice and the Internaitonal Legal Order After Kadi’, 2010, 51 (Winter) Harvard International Law
Journal, 1.
5
Joined cases C-402/05 P and C-415/05 P, Yassin Abdullah Kadi and Al Barakaat International Foundation v
Council of the European Union and Commission of the European Communities,ECR I-06351(2008).

37
international law. The Court’s interpretation of the principle of autonomy presents a limit to the
EU’s development as an international actor and stands in stark contrast to the international
commitments reflected in the Treaties. With the EU entering the realm of international
investment law, this paper discusses some of the challenges that future EU investment
agreements face in the light of the Court’s interpretation of the principle of autonomy. It focuses
on provisions establishing investor-state arbitration tribunals, so called ISDS provisions, because
of their significance for modern investment agreements. State-to-state investment arbitration, a
more traditional means of inter-state dispute resolution, will be discussed more briefly towards
the end.

This work endeavors to explain how the concept of autonomy of the EU legal order, which has
its roots in the early years of the establishment of the internal market, has been expropriated and
employed for the purpose of protecting institutional prerogatives, above all those of the CJEU.
Based on this background, it is argued that traditional ISDS provisions cannot easily be
reconciled with the principle of autonomy.

2. The external dimension of the principle of autonomy

2.1 Autonomy: a multi-dimensional concept

During the political stalemate of the 1960s in the European Council, other EU institutions were
looking for pragmatic solutions to ensure the continuity of the European project. With the
establishment of the internal market only in its beginnings it was, above all, the abolition of
customs duties and charges having equivalent effect that was at the core of the EU political
agenda at the time. Much of the key case law in this area was handed down in the period between
the early 60’s and the 80’s, with Van Gend en Loos leading the way. 6This seminal judgment of
the CJEU marks the birth of the two most significant constitutional doctrines of EU law, i.e.
supremacy and direct effect, and thereby defined the relationship between the EU and its
Member States in a remarkably radical fashion. Ultimately, however, it appears that direct effect
was first and foremost a means to ensure full effectiveness in the implementation of what was
then Article 12 of the Treaty establishing the European Economic Community (EEC). “The
vigilance of individuals concerned to protect their rights amounts to an effective supervision in
addition to the supervision entrusted … to the diligence of the Commission and of the Member
States”, so the Court pointed out. 7

In its core the EEC Treaty, as an international agreement, was to be interpreted and applied in
accordance with principles of international law. However, significantly diverging domestic
regulation within the Member States on the effect and applicability of international agreements
had the potential to severely limit the effective implementation of the Treaty, and to that extent
the full establishment of the internal market. 8 The Court found support for its conclusion by

6
Case 26/62, NV Algemene Transport- en Expeditie Onderneming van Gend & Loos v. Netherlands Inland Revenue
Administration, ECR 0001 (1936).
7
Ibid., 13.
8
Jan W. van Rossem, ‘The Autonomy of EU Law: More is Less?’ in Ramses A. Wessel and Steven Blockmans
(eds), Between Autonomy and Dependence: The EU Legal Order under the Influence of International Organisations
(T.M.C. Asser Press/Springer 2013).

38
intellectually positioning itself, already at this early stage, in pluralistic argumentation. “This
Treaty…”, so the Court argued, “…is more than an agreement which merely creates mutual
obligations between the contracting states.” 9 The Court continues, “…the Community constitutes
a new legal order of international law for the benefit of which the states have limited their
sovereign rights, albeit within limited fields …”. 10 With these words the Court essentially
redefines the relationship of the EU legal order vis-à-vis international law by differentiating the
two definitely. 11 Putting its constitutional value for the relationship between the EU and its
Member States aside, Van Gend thereby laid the ground for the development of an autonomous
EU legal order internationally. 12

The Court provided detail, which Van Gend lacked, in Costa v E.N.E.L. 13, yet another example
of the Court’s pragmatism during the 1960s. Not unlike its earlier judgment, Costa concerned the
question of the status and effect of the EEC Treaty in the domestic legal orders. Reiterating its
earlier rhetoric, the CJEU emphasized that “[b]y contrast with ordinary international Treaties,
the EEC Treaty has created its own legal system which … became an integral part of the legal
systems of the Member States …”. 14 The CJEU in Costa thereby clearly separates the EU legal
order from the rest of international law once again. It is noteworthy that the Court more broadly
refers to the EU legal order as a system of law without further reference to its position or
affiliation with international law, 15 thus reflecting its autonomous position even more
emphatically. 16 In retrospect, it feels safe to assume that at the time the Court itself might not
have been fully aware of the true potential of the principle it was establishing.

In short, the overall picture reveals that the concept of autonomy was initially used to support the
notions of direct effect and supremacy of EU law, which both reflect the effort to organize and
regulate the internal relationship of the EU with domestic legal orders under the rationale of
assuring full effectiveness of the Treaty. Internally, therefore, autonomy could be understood as
referring to the integrity of the Treaty, to the extent that its effective implementation shall not be
circumvented by recourse to the domestic law of the Member States. 17 It has long since been
recognized that the EU has a character sui generis. Indeed, Weiler was forthright in his statement
that it has become “…increasingly artificial to describe the legal structure and processes of the
Community with the vocabulary of international law…” 18; and this is all the more true today.
The peculiar nature of the EU, thus, required the establishment of a conceptual framework to
which Van Gend and Costa were instrumental.

9
Case 26/62,Van Gend en Loos, 12.
10
Ibid., emphasis added.
11
Barents even traces the roots of autonomy back to the case law of the ECSC-Court, see Rene Barents, The
Autonomy of Community Law, 240-243 (Kluwer Law International 2004).
12
Ibid., 182-183.
13
Case 6/64, Flaminio Costa v. E.N.E.L.,ECR 0585(1964).
14
Ibid., 593, emphasis added.
15
Christian Tietje and Clemens Wackernagel, ‘Enforcement of Intra-EU ICSID Awards’, 16(2) The Journal of
World Investment and Trade, 205, 215 (2015).
16
The French version of the case refers to the Treaty as “une source autonome”, 1160.
17
Case 6/64,Flaminio Costa v. E.N.E.L., 594.
18
Joseph H. H. Weiler and Ulrich. R. Haltern, ‘The Autonomy of the Community Legal Order - Through the
Looking Glass’, 37(2) Harvard International Law Journal, 411 (1996).

39
The broader implications of the Court’s reasoning were not apparent until the early 1990’s. The
EU’s exposure to international legal processes grew significantly with its increasing engagement
in international fora, triggering questions regarding the legal and institutional relationship of the
EU with international law. 19 In this context, Van Gend and Costa served as more than stepping-
stones for the completion of the internal market. They provided an image of an autonomous EU
legal order that existed independent of external legal processes, including not only domestic but
also international law. The Court’s case law is discussed in more detail below; suffice it to say
here that, externally, the concept of autonomy can be divided into two aspects. First, not unlike
its internal dimension, the reasoning of the CJEU results in an autonomous claim that effectively
excludes international law from having an impact on the interpretation and application of EU law
within the respective domestic legal orders of the Member States. As a self-referential system,
EU law is independent of international law. 20

Second, the CJEU conspicuously extended the concept of autonomy vis-à-vis other international
legal regimes to include its institutional framework. This aspect of the external dimension of
autonomy focuses on the protection of institutional structures and prerogatives, with the result of
withdrawing the institutional dimension of the EU from the oversight of international law. 21
With respect to the relationship of the EU legal order with international courts and tribunals, it is
this latter aspect of autonomy that is of particular interest for this endeavor to investigate the
legal and institutional difficulties to which the EU as an actor in international investment law is
inevitably exposed.

Consequently, as a declaration of inviolable integrity of EU law and its institutional framework,

autonomy was initially conceived on the basis of facilitating the realization of the internal
market, and thereby the effective implementation of the Treaty. However, as this paper seeks to
demonstrate, the Court’s external application of the principle of autonomy has developed into a
de facto protection of the Court’s own judicial prerogatives at the cost of creating an obstruction
to the EU’s development as an international actor. Any serious implications that this line of
reasoning may have on the conclusion of EU investment agreements with ISDS provisions will
be discussed at a later stage. First, however, the Court’s application of the principle of autonomy
to international courts and tribunals requires a more detailed analysis.

2.2 Developing the external dimension of autonomy: the use of Article 218(11) TFEU to
limit exposure to international courts and tribunals

In fact, the Court of Justice did not explicitly refer to ‘autonomy’ as a principle of EU law until
the early 1990s, when referring to its external dimension, although it was demonstrated above

19
Christina Eckes, ‘The European Court of Justice and (Quasi-) Judicial Bodies of International Law’ in Ramses A.
Wessel and Steven Blockmans (eds), Between Autonomy and Dependence: The EU Legal Order under the Influence
of International Organisations, 85 (2013).
20
Barents (2004), 259.
21
In his seminal work Schilling presented an attempt to conceptualize the position of the superiority of the Court of
Justice to the domestic courts of the Member States by recourse to theoretical concepts in internationalism or
constitutionalism. In his own work, Weiler contested Schilling’s findings and provides himself remarkable insight
on the theoretical foundations of the institutional aspect of the autonomy of the EU legal order in its internal
dimension. See Theodor Schilling, The Autonomy of the Community Legal Order: An Analysis of Possible
Foundations, 37(2) Harvard International Law Journal,389 (1996); Weiler and Haltern (1996).

40
that earlier cases already implicitly enshrined its value as a constitutional principle. 22 In Opinion
1/91 the Court evaluated the draft agreement establishing the European Economic Area (EEA),
which aimed at the participation of the Member States of the European Free Trade Association
(EFTA) in the internal market without requiring full EU membership. 23 The CJEU concluded
that the draft agreement was “…likely adversely to affect … the autonomy of the [EU] legal
order…”. 24 This paper is in particular concerned with the Court’s reasoning in respect to the
establishment of international courts and tribunals under EU agreements, an area that is
predominantly developed through a line of strikingly restrictive opinions of the Court. 25

In order to extend the internal market provisions of the EC Treaty to the EFTA countries, the
EEA agreement simply reproduced those provisions in the text of the agreement. It furthermore
envisaged the establishment of an independent judicial body, the EEA court, to hear disputes
concerning the interpretation of the EEA agreement. The CJEU observed that the EEA draft
agreement thereby essentially provided the EEA court with jurisdiction to interpret provisions of
the agreement that are identical to EC Treaty provisions. According to the CJEU, this adversely
affected the uniformity of interpretation of these two instruments and would have ultimately
restrained the CJEU in its interpretation and application of the Treaty internally. 26

Additionally, the prior-involvement of the CJEU through a preliminary reference mechanism

limited the CJEU to providing advisory opinions rather than binding interpretations of EU law. 27
Despite the fact that the CJEU would not, as a matter of law, have been bound by the
interpretations of the EEA court in the interpretation of primary EU law, 28 homogeneity in the
interpretation of EU law was a sufficiently strong reason for the Court to reject the agreement.
Upon revision, the CJEU approved the second EEA draft agreement, which territorially limited
the jurisdiction of the, by then rebranded, EFTA court 29 to the EFTA countries and rendered
preliminary rulings by the CJEU binding in nature. 30 Notably, unlike the internal dimension of
the principle of autonomy, which requires domestic courts to interpret and apply EU law as a
regular task in their role as ordinary courts of the EU legal order, international courts and
tribunals are precluded from exercising this interpretive activity. 31

The two EEA opinions of the CJEU are representative of the Court’s willingness to protect the
integrity of EU law externally. It furthermore hinted at the institutional dimension of the
autonomy principle by substantiating its reasoning with reference to its own judicial prerogatives
under the Treaty. 32 The principle itself remained, nonetheless, conceptually largely undeveloped

22
Barents (2004), 182.
23
Barbara Brandtner, The ’Drama’of the EEA – Comments on Opinions 1/91 and 1/92, European Journal of
International Law, 300 (1992).
24
Opinion 1/91, Draft agreement between the Community, on the one hand, and the countries of the European Free
Trade Association,ECR I-06079para. 35, emphasis added (1991).
25
Rass Holdgaard, External Relations Law of the European Community: Legal Reasoning and Legal Discourses,
Ch. 5.3.2(Kluwer Law International 2008).
26
Opinion 1/91,EEA agreement, paras 41-46.
27
Ibid., paras45, 61-64.
28
Infra, pt. 4.
29
Opinion 1/92, Amended Draft EEA Agreement, ECR I-02821(1992).
30
Ibid., para. 34.
31
Eckes (2013), 88.
32
Opinion 1/91, EEA agreement, 35.

41
until Opinion 1/00. 33 There, the CJEU was asked to assess the agreement establishing a
European Common Aviation Area (ECAA), the drafting of which was clearly inspired by the
EEA drama. 34 Not unlike the EEA, the ECAA was aimed at extending an important sector of the
EU internal market, i.e. air transport, to the EFTA countries and a host of Central and Eastern
European states. This again was achieved by reproducing essential provisions of the Treaty in the
text of the agreement. Unlike the EEA, however, it did not establish an independent judicial
body, but merely a joint committee charged with oversight over the interpretation and application
of the agreement by national authorities and domestic courts. 35 The primary significance of this
opinion lies in its systematic development of the principle of autonomy, providing a clear and
precise definition of its elements. Accordingly, an international court or tribunal must comply
with two conditions in order to conform to the principle of autonomy. First, the international
court or tribunal cannot bind the Union and its institutions internally to a specific interpretation
of EU law. 36 Second, it cannot affect the essential characteristics of powers conferred upon the
EU institutions under the Treaty. 37 This includes, on the one hand, the interpretation of the
allocation of competences, which remains exclusively a matter for the CJEU. On the other hand,
it requires that the essential characteristics of powers allocated to institutions under the Treaty
remain unaltered.

Short of setting up an international judicial body with the explicit task of interpreting and
applying EU legislation or making its decisions binding on the CJEU, it is not easily conceivable
how the interpretation of an international court or tribunal could bind the CJEU to a particular
interpretation or EU law. This is particularly true where it concerns interpretations of the
Treaties. According to Article 216(2) TFEU, international agreements become integral parts of
the EU legal order upon conclusion. 38 In the hierarchy of EU norms, international agreements
outrank secondary EU law, but remain subordinate to the Treaty. 39 As acts implementing the
agreement, decisions of international courts and tribunals exert the same effect on secondary EU
law as the agreement itself, 40 but would not affect the interpretation of primary EU law. 41
Assuming that decisions of an international judicial body, which is set up under the agreement,
enter the EU legal order at the same level as the agreement, this might require a consistent

33
Holdgaard (2008), 85.
34
Opinion 1/00, European Common Aviation Area, ECR I-3493 (2002).
35
Holdgaard (2008), 86.
36
Opinion 1/00,European Common Aviation Area, paras. 11, 13.
37
Ibid., paras. 12, 16, 21.
38
Case 181/73, R& V Haegeman v. Belgian State, ECR 449, para. 5 (1974); Case 181/73, Air Transport Association
of America v. Secretary of State for Energy and Climate Change, ECR I-0000, para. 50(2011).
39
Case C-61/94, Commission v. Federal Republic of Germany, ECR I-3989, para. 52 (1996); Case C-286/02, Bellio
F.lli Srl v. Prefettura di Treviso, ECR I-3479, para. 33 (2004); Case C-344/04, International Air Transport
Association v. Department for Transport, ECR I-443, para. 35 (2006); see also Allan Rosas, The Status in EU Law
of International Agreements Concluded by EU Member States, 34 Fordham International Law Journal, 1304, 1310
(2011).
40
With regards to decisions of committees established under international agreements the Court already confirmed
this argumentation. Thus, decisions of the ‘Council of Association’ under the Ankara Agreement were so closely
linked to the implementation of that agreement that they constituted a legal act in as much as the agreement itself,
see Case C-192/68, S. Z. Sevince v. Staatssecretaris van Justitie, ECR I-3461, paras. 8-9 (1990).
41
Kirsten Schmalenbach, ‘Struggle for Exclusiveness: The ECJ and Competing International Tribunals’ in Isabelle
Buffard, James Crawford, Alain Pellet and Stephan Wittich (eds), International Law Between Universalism and
Fragmentation: Festschrift in Honour of Gerhard Hafner, 1048-1049 (2008); Brandtner (1992), 309-310.

42
interpretation of secondary EU law, but not of the Treaties. 42 In the case of the EEA agreement,
therefore, decisions of the EEA court did not bind the CJEU simply by virtue of the legal status
of the agreement within the hierarchy of EU norms. The Court’s reasoning in Opinion 1/91
implicitly supports this by acknowledging that decisions of international courts and tribunals can
have a binding effect in as far as interpretation of the agreement is concerned. 43 It demonstrates
that a de facto impact on the uniformity of interpretation of EU law will lead to an
incompatibility of the international agreement with the principle of autonomy even where the
CJEU retains its interpretive privilege. The Court indicates the boundaries of that impact by
focusing on the international court’s involvement in the interpretation of EU law.

Opinion 1/09 should be read in this context. Confronted with the task of assessing the European
Patents Court (EPCt) in the light of its conformity with the Treaty, the CJEU remarked that it
would essentially replace domestic courts in their task to interpret and apply EU patents law.
This being said, the EPCt was a pan-European court for intellectual property rights with
exclusive jurisdiction; 44 the EU itself was not privy to the agreement. Despite the institutional
severance of the EPCt from the EU institutions, the CJEU placed a heavy focus on institutional
implications, rather than the EPCt’s jurisdiction to deliver binding interpretations on EU
legislation. By way of replacing domestic courts in the area of EU patents law the EPCt, so the
CJEU concluded, “…would deprive those courts of their task, as ‘ordinary’ courts within the
European Union legal order, to implement European Union law and, thereby, of the power
provided for in Article 267 TFEU.” 45 Despite domestic courts not falling within the scope of the
Treaty definition of EU institutions,46 the CJEU clearly considered it pertinent to extend the
institutional protection under the principle of autonomy to cover the role of domestic courts vis-
à-vis the Court of Justice. 47 Circumventing the domestic courts’ responsibilities under Article
267 TFEU, thus, alters the essential characteristic of their power under the Treaty.

The prior involvement of the CJEU has been an important aspect of the principle of autonomy
even before Opinion 1/09. The preliminary reference mechanism that was included in the first
EEA draft agreement altered the essential characteristics of the Court’s power by declaring its
intervention advisory rather than binding in nature. 48 With Opinion 1/09, however, this aspect
seems to have taken on more significance for the Court’s appraisal of international judicial
bodies. In the assessment of compatibility with the autonomy of the EU legal order, the
preliminary reference mechanism now occupies a central and independent role. This is also
supported by the recent Opinion 2/13, rejecting the draft accession agreement of the EU to the

42
Schmalenbach (2008), 1048-1049.
43
Opinion 1/91,EEA agreement, para. 39.
44
Article 15(2) Draft Agreement, see Opinion 1/09, European Patents Court, ECR I-1137, para. 10 (2011).
45
Ibid., para. 80.
46
Article 13 TEU.
47
The defect of the draft agreement was further aggravated by substituting the EPCt as the only judicial body to
communicate with the CJEU in the field of patent litigation, see Opinion 1/09,European Patents Court, para. 81;
Roberto Baratta, National Courts as ’Guardians’ and ’Ordinary Courts’ of EU Law: Opinion 1/09 of the ECJ, 38
Legal Issues of Economic Integration, 297, 305-306 (2011).
48
Contrast the CJEU’s statement in para. 59 acknowledging jurisdiction under an international agreement with para.
61 declaring it outright unacceptable that the nature of its intervention is altered, Opinion 1/91,EEA agreement,
paras. 59, 61-64.

43
ECHR. 49 Amongst other things, the CJEU reiterated the importance of the Court’s prior
involvement in two ways. First, it rejected the mechanism that was envisaged in the draft
accession agreement, on the basis that it allowed for references on questions concerning the
interpretation of primary EU law only. According to the Court the prior involvement mechanism
must extend to the review of all EU law in respect to its compatibility with the ECHR.50
Otherwise, so the CJEU explained, “…there would most certainly be a breach of the principle
that the Court of Justice has exclusive jurisdiction over the definitive interpretation of EU law.” 51

Second, the Court emphasized that, under certain circumstances, the international agreement
must provide for a preliminary reference mechanism. “The necessity for the prior involvement of
the Court of Justice in a case … in which EU law is at issue satisfies the requirement that the
competences of the EU and the powers of its institutions, notably the Court of Justice, be
preserved …,” so the Court stressed. 52 This is a remarkable statement, because earlier case law
did not suggest that the existence of such a mechanism in itself constitutes an element of the
principle of autonomy, but rather that it needs to safeguard the essential characteristics of the
CJEU under Article 267 TFEU when the agreement includes a preliminary reference mechanism.
Although Opinion 2/13 finds additional support in Protocol No 8 EU, which provides the
framework for the EU’s accession to the ECHR, its reasoning could have broader implications. It
was argued earlier that the indispensable condition not to adversely affect the essential character
of powers derived under the Treaty constitutes a general requirement of the principle of
autonomy.

Whilst initially the institutional dimension of the principle of autonomy was instrumental in
order to guarantee the integrity of EU law, the center of gravity in the Court’s reasoning has
shifted in recent cases towards the protection of institutional prerogatives, and in particular the
judicial prerogatives of the Court itself. 53 The second aspect of the principle, i.e. the protection
of the essential characteristics of powers conferred upon the institutions under the Treaties, has
gained in significance. The existence of a prior involvement mechanism for the CJEU has
emerged as a factor that is pivotal for the compatibility of the international agreement with the
EU Treaties.

2.3 MOX Plant and Kadi

Two more cases, which demonstrate the pertinence that the CJEU lends to autonomy as a
constitutional principle and provide a context for the application of the principle of autonomy
with regards to international courts and tribunals, deserve to be mentioned here. In MOX Plant 54,
Ireland initiated arbitral proceedings against the United Kingdom under the United Nations
Convention on the Law of the Sea (UNCLOS) against the operation of a nuclear facility
49
Opinion 2/13,Accession to the ECHR; see Stephan W. Schill, Editorial: Opinion 2/13 – The End for Dispute
Settlement in EU Trade and Investment Agreements?, 16(3) The Journal of World Investment and Trade, 379
(2015).
50
Opinion 2/13,Accession to the ECHR, paras. 245, 247.
51
Ibid., para. 246.
52
Ibid., para. 237.
53
Nikolaos Lavranos, ‘The ECJ's Relationship With Other International Courts’ in Karsten Hagel-Sorensen, Ulrich
R. Haltern, Henning Koch and Joseph H. H. Weiler (eds), Europe: the New Legal Realism: Essays in Honour of
Hjalte Rasmussen, 393, 410 (Djoef Publishing 2010).
54
Case C-459/03, Commission v. Ireland (MOX plant), ECR I-4657 (2006).

44
reprocessing spend plutonium in Sellafield – the MOX plant. Having established prima facie
jurisdiction the UNCLOS arbitral tribunal stayed the proceedings and ordered the parties to
inquire whether the Court of Justice had jurisdiction, given the involvement of EURATOM and
EU environmental legislation. 55 The CJEU concluded that, by virtue of Article 344 TFEU,
Member States are prevented from initiating disputes before courts and tribunals other than the
CJEU in matters covered exclusively by EU competence, which the Court readily found on the
facts of this case. 56 Thus, Ireland was in breach of its obligations under the Treaty by referring
the dispute to the UNCLOS tribunal.

The Court’s reasoning raises a host of interesting questions. Most important for present purposes
is the possible external dimension of Article 344 TFEU. The fact that this article is usually
invoked in cases between Member States can be ascribed to the nature of the article and the case
law of the CJEU, which lends itself more easily to an intra-EU application. First, Article 344
TEU is clearly directed inwards, imposing obligations on the Member States. It reads, “Member
States undertake not to submit a dispute concerning the interpretation or application of the
Treaties to any method of settlement other than those provided for therein.” It is only natural that
this Article finds its application primarily in the relationship between Member States. Second,
the two main cases that have developed the application of Article 344 TFEU in the context of the
principle of autonomy, MOX Plant and Opinion 2/13, both concern mixed agreements, which
structurally allow for the initiation of dispute settlement procedures between Member States.57
This is not the case in EU trade and investment agreements, which establish rights and
obligations only vis-à-vis third countries.

Nonetheless, it is argued here that neither the case law of the Court, nor a strict reading of
Article 344 TFEU, limits its application exclusively to intra-EU relations. On the contrary, MOX
Plant suggests that Article 344 TFEU restricts Member States from engaging in disputes before
other judicial bodies than the CJEU where the subject matter of the dispute falls within EU
competence. This is specifically the case where the dispute is “…between two Member States in
regard to an alleged failure to comply with Community-law obligations”. 58 However, state-to-
state disputes between Member States and third countries can also concern material aspects of
Treaty interpretation and thus, in limited circumstances, trigger an application of Article 344
TFEU. 59Opinion 2/13 reiterates and further restricts the Court’s reasoning in MOX Plant, as far
as the intra-EU application of Article 344 TFEU is concerned. It also emphasizes the nature of
Article 344 TFEU as an expression of the principle of loyalty, 60 and as such it represents an

55
Nikolaos Lavranos, Protecting its Exclusive Jurisdiction: The MOX Plant-Judgment of the ECJ, 5 The Law and
Practice of International Courts and Tribunals, 479 (2006); Nikolaos Lavranos, Court of Justice of the European
Communities: MOX Plant Dispute, 2 European Constitutional Law Review,456 (2006); Cesare P. R. Romano,
Commission of the European Communities v. Ireland, 101(1) The American Journal of International Law, 171
(2007).
56
Case C-459/03,MOX Plant, paras. 126-127.
57
Stian Øby Johansen, Reinterpretation of TFEU Article 344 in Opinion 2/13 and Its Potential Consequences, 16
German Law Journal, 169 (2015).
58
Case C-459/03,MOX Plant, at para. 128.
59
For an opposite opinion see Markus Burgstaller, Dispute Settlement in EU International Investment Agreements
with Third States: Three Salient Problems, 15(3-4) The Journal of World Investment and Trade, 551, 562 (2014).
60
Opinion 2/13,Accession to the ECHR, at para. 202.

45
obligation to facilitate the CJEU in the exercise of its competences. 61 It will be discussed in brief
below how this is likely to affect the obligations of Member States under state-to-state dispute
settlement in future investment agreements.

On the other hand, Kadi 62 serves primarily as an example of the Court’s pluralistic view on the
relationship of EU law with international law. The case admittedly reinforced a stronger
protection of fundamental rights in the EU by the CJEU than the ECtHR 63, but nevertheless
lends itself to criticism because the Court’s emphasis on “…separateness, autonomy, and
constitutional priority of the [EU] legal order over international law…” is counterintuitive to the
perceived openness of the EU to international legal frameworks reflected in the Treaties. 64 Kadi,
therefore, distinctly manifests the constitutional value of the principle of autonomy. Beyond that,
it illustrates that the EU’s participation in international legal frameworks should not be mistaken
for a transfer of power over the interpretation and application of EU law to external norm-
creating or judicial bodies. The EU is an “…autonomous legal system which is not to be
prejudiced by an international agreement…”, the Court pointed out. 65 Additionally, the case
demonstrates that international commitments are subject to challenges under EU law in as far as
they run counter to the fundamental principles of the EU legal order. 66 Remarkably, the Court
based its reasoning explicitly on the element of the principle of autonomy that protects the
allocation of competence under the Treaty from external influence. 67 Whilst acknowledging that
the Court of Justice cannot invalidate, or in fact review, the lawfulness of an international
measure, i.e. the Security Council Resolution at hand, it retains full competence over the
assessment of compatibility of implementing EU legislation with fundamental rights, which form
part of primary EU law. The assessment of EU law against international obligations remains
under the exclusive jurisdiction of the Court of Justice, according to Article 19 of the Treaty on
European Union (TEU). 68 The CJEU ultimately reiterated this line of argumentation in Opinion
2/13. 69

2.4 Autonomy and investment arbitration: phrasing the problem

It transpires from the above that the Court’s case law is largely characterized by significant
factual peculiarities. Both the EEA and ECAA agreements concerned the interpretation of literal
reproductions of Treaty provisions in the respective international agreement. The EPCt, as an
international judicial body, was explicitly charged with the mandate to interpret and apply EU
patents law. And the accession agreement to be ECHR was not only provided for by the Treaties,
but also further developed in a protocol to the TFEU. Even MOX Plant and Kadi are particular,
in that MOX Plant concerned an internal dispute between two Member States under a mixed

61
Eleftheria Neframi, The Duty of Loyalty: Rethinking its Scope through its Application in the Field of EU External
Relations, 47(2) Common Market Law Review,323 (2010).
62
Joined cases C-402/05 P and C-415/05 P,Yassin Abdullah Kadi and Al Barakaat International Foundation
vCouncil of the European UnionandCommission of the European Communities, ECR I-06351 (2008).
63
de Búrca (2010), 31.
64
Ibid., 7, 41.
65
Joined cases C-402/05 P and C-415/05 P,Kadi, para. 316.
66
Ibid., para. 304; see Pietro Ortolani, Intra-EU Arbitral Awards vis-a-vis Article 107 TFEU: State Aid Law as a
Limit to Compliance, 6(1) Journal of International Dispute Settlement,118, 132 (2015).
67
Joined cases C-402/05 P and C-415/05 P,Kadi, para. 282.
68
In substance replacing Article 220 EC.
69
Opinion 2/13, Accession to the ECHR, at para. 177.

46
agreement, while in Kadi the Court was above all taking a strong stance towards the protection
of fundamental rights, approaching the case as an internal assessment of EU legislation vis-à-vis
fundamental principles of EU law.

To assume that this limits the application of the principle of autonomy to international courts
and tribunals is misguided. 70 Regardless of their individual circumstances, the Court's reasoning
in all these cases appears to be carefully crafted and expressed in the distinct manner of
overarching constitutional value. It is clear that the focus of the CJEU shifted from protecting the
integrity of EU law at the center of autonomy to the protection of institutional prerogatives. All
the recent judgments since Opinion 1/00 employ the aspect of safeguarding the allocation of
competences under the Treaty as an umbrella term in the application of that principle. Even
though the underlying rationale of Opinion 1/09 indicates the Court’s effort to guarantee the
harmonious interpretation of EU law, the judgment is based on the institutional dimension of
autonomy, protecting the powers of the CJEU to provide definitive interpretations of EU law by
virtue of having recourse to the role of domestic courts. 71 The reasoning of the CJEU also
suggests that the principle of autonomy does not presuppose that an international court or
tribunal is given an express mandate to interpret and apply EU law as long as its judicial activity
circumvents ‘judicial dialogue’ between domestic courts and the CJEU. 72 Lastly, nothing in the
line of argumentation suggests that international agreements may transfer the jurisdiction to
review EU law vis-à-vis the international agreement to an international court or tribunal.
Particularly not when the review affects an area of exclusive EU competence. Opinion 2/13
suggests that a mechanism providing for a declaration of incompatibility of EU law with
international standards in itself raises concerns in the light of the principle of autonomy. 73

Given the above, the relevance of the principle of autonomy for an assessment of the
compatibility of ISDS provisions in EU investment agreements with the Treaties becomes
irrefutable. It is argued here that it is the core task of investor-state tribunals under EU
investment agreements to determine the compatibility of EU legal acts with international
standards of investment protection. Whilst the procedural frameworks resembles in large parts
standard commercial arbitration, the activity of investment tribunals is more akin to international
judicial review than it is to private arbitration. This is not in the least because of the particular
nature of investor-state arbitration, which derives consent from sovereign power rather than
private commercial capacity of the contracting states. It is therefore pivotal to investigate
whether ISDS provisions affect the essential characteristics of powers conferred upon the Court
under the Treaties, given the wide interpretation the CJEU lends to this aspect in its application
of the principle of autonomy to international courts and tribunals.

70
For an opinion to the contrary see Angelos Dimopoulos, The Involvement of the EU in Investor-State Dispute
Settlement: a Question of Responsibilities, 51(6) Common Market Law Review, 1671 (2014).
71
Opinion 1/09,European Patents Court, paras. 84, 89.
72
Burgstaller (2014), 563.
73
Opinion 2/13, Accession to the ECHR, para. 246.

47
3. Investment arbitration and EU agreements

3.1 Investment arbitration: an overview

Before venturing into the substantive legal analysis it is crucial to recall the basic characteristics
of investment arbitration. Historically, investment law finds its roots in the protection of property
abroad under the principles of public international law. Where the local judiciary proved
inefficient or inadequate, the investor traditionally had to seek diplomatic protection, 74 tying the
resolution of disputes over the expropriation of commercial property to the political will of the
investor’s home state. By the mid-1990’s, ISDS provisions had developed into the standard of
modern investment treaty law. 75 ISDS presents a standing offer to any eligible investor, granting
direct access to an international arbitral tribunal to enforce the rights under the agreement in
regards to any investment that falls within its scope. Consent of the state-party to arbitration is
implied in the investment agreement and merely requires the investor to initiate the claim. 76 In
other words, once the state has decided to include ISDS into an investment agreement there is
nothing that can prevent an eligible investor from pursuing an investment dispute under that
agreement.

The procedural rules governing the arbitration procedure are identified in the ISDS provisions
and vary amongst different investment agreements. Most commonly, investment agreements
include a reference to the International Center for the Settlement of Investment Disputes
(ICSID), which devised a set of rules particularly tailored for investment disputes. The EU is not
a member of the ICSID Convention 77 and this framework is thus not available in investment
disputes against the EU as a respondent. 78 The ICSID Additional Facility Rules are generally
applicable in cases where either the state party to the dispute or the state of the investor’s
nationality is signatory to the ICSID Convention. They can only be used, however, for disputes
between an investor and a state, and are thus not available for disputes against the EU either. 79
Although claims under the Additional Facility Rules are administered by the ICSID and benefit
of its institutional structure, they do not equip the investor with the full range of legal protection
that is available under the ICSID Convention. 80 Lastly, other procedural frameworks such as the
United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, the
arbitration rules of the International Chamber of Commerce (ICC), or the Stockholm Chamber of
Commerce (SCC) are traditional commercial arbitration rules that can be used for the settlement
of investment disputes.

74
For a comprehensive outline of the methods of dispute resolution see, August Reinisch and Loretta Malintoppi,
‘Methods of Dispute Resolution’ in Peter Muchlinski, Federico Ortino and Christoph Schreuer (eds), The Oxford
Handbook of International Investment Law, 691, 691(2008).
75
Rudolf Dolzer and Christoph Schreuer, Principles of international investment law, 6-7 (2nd ed., Oxford
University Press 2012); Gus Van Harten and Martin Loughlin, Investment Treaty Arbitration as a Species of Global
Administrative Law, 17(1) European Journal of International Law, 121, 123 (2006).
76
Dolzer and Schreuer (2012), 257.
77
Washington Convention on the Settlement of Investment Disputes between States and National of Other States, as
amended 10 Apr 2006, International Centre for Settlement of Investment Disputes,
https://icsid.worldbank.org/ICSID/StaticFiles/basicdoc/CRR_English-final.pdf (accessed 16 September 2015).
78
Gus Van Harten, Investment Treaty Arbitration and Public Law, 24 (2008).
79
Burgstaller argues that an amendment of the ICSID Additional Facility Rules is much more likely than EU
membership to ICSID, see Burgstaller, 559 (2014).
80
Reinisch and Malintoppi (2008), 706.

48
Commercial arbitration tribunals are inherently competent to decide on their own competence 81
and Article 41(2) ICSID reflects a similar approach for ICSID tribunals. 82 This effectively means
that after initiation of the claim the tribunal will decide whether or not it has jurisdiction to hear
the dispute and subsequently render the award. ICSID awards are final and automatically
enforceable in the territory of all states that are signatories to the ICSID Convention. 83 The
ICSID provides for the revision or annulment of awards in very limited circumstances only, 84
and does not allow for an award to be appealed on substantive grounds. Domestic courts are,
thus, excluded entirely from the process of dispute resolution.

Instead, under the ICSID Additional Facility Rules or commercial arbitration rules, it is for the
domestic courts to enforce the award in accordance with the New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). 85 According
to Article V, domestic courts have limited grounds to refuse the recognition or enforcement of
awards, which in any case should not amount to a de facto appeal of the award. Put simply, once
the claim is initiated before a tribunal, there is practically no room for domestic courts to
intervene in the process Although this effectively depoliticizes the process for the settlement of
investment disputes, from an EU law perspective it is controversial, because it encourages
investors to circumvent the judicial prerogatives of the CJEU.

3.2 The nature of EU trade and investment agreements

Including FDI as an integral part of the EU’s exclusive competence in international trade appears
coherent with the historical development of the CCP.86 With trade liberalization at its heart, the
CCP constitutes the necessary link between the EU and the multilateral trading system, enabling
the EU’s participation in the General Agreement on Tariff and Trade (GATT) and later the
World Trade Organization (WTO). However, whilst multilateral trade negotiations progressed
towards non-traditional aspects of trade, i.e. trade in services, intellectual property rights and
investment, the CCP retained a limited focus on trade in goods. Judicial pragmatism of the
CJEU, confirming the dynamic nature of the CCP, was insufficient to bridge the widening gap
between competences under the CCP and multilateral commitments. 87 The Uruguay round
negotiations, ultimately resulting in the establishment of the WTO and the conclusion of a range

81
i. e. Art. 23; Art. 16(1)(1) UNCITRAL Model Law; Art. 6 ICC.
82
Dolzer and Schreuer (2012), 241; Chester Brown, ‘Procedure in Investment Treaty Arbitration and the Relevance
of Comparative Public Law’ in Stephan W. Schill (ed), International Investment Law and Comparative Public Law,
659, 666-68 (2010);Andrew Tweeddale and Keren Tweeddale, Arbitration of commercial disputes: international
and English law and practice,169-170 (2005); Marianne Roth, ‘UNCITRAL Model Law’ in Frank-Bernd Weigand
(ed), Practitioner's Handbook on International Commercial Arbitration, 953, 1021-1022 (2nd edn, Oxford
University Press 2009); Jean-François Poudret and Sébastien Besson, Comparative law of international arbitration,
384-386 (2nd ed., Sweet & Maxwell 2007); for a recent arbitral decision on jurisdiction issued by the investment
arbitration tribunal under the Energy Charter Treaty see Electrabel S. A. v. Hungary, (ICSID CASE NO.
ARB/07/19), Part V (30 November 2012).
83
Art. 53 ICSID.
84
Arts 51 and 52 ICSID.
85
Dolzer and Schreuer (2012), 310.
86
For a comprehensive outline on the development of the common commercial policy, see Piet Eeckhout, EU
External Relations Law, 25-35, 57-67 (Oxford University Press 2011).
87
Opinion 1/75, Understanding on a Local Cost Standard, ECR 1355 (1975); Opinion 1/78, International
Agreement on Natural Rubber,ECR 2871, para. 45 (1979).

49
of multilateral agreements, clearly depicted this growing incongruence. 88 The CJEU confirmed
in Opinion 1/94 that both the General Agreement on Trade in Services (GATS) and the
Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs) fell outside the
EU’s exclusive competence, 89 triggering a comprehensive Treaty amendment and a progressive
alignment of the EU external trade competence with issues under negotiation in the WTO.90 The
Lisbon Treaty has subsequently extended the list of competences even further, including foreign
direct investment. 91 Furthermore, the CJEU has subsequently confirmed that GATS 92 and
TRIPs 93 now fall entirely under the exclusive competence of the CCP.

Despite the initially strong focus on trade and investment, disagreement in the Uruguay
negotiating round hampered real achievements in this area and limited the outcome of the
negotiations to the Agreement on Trade-Related Investment Measures. The issue of trade and
investment was brought over into the Doha Round negotiations, but was subsequently dropped
entirely. 94 In the midst of the WTO negotiations, EU Member States began their discussions on
the Constitutional Treaty, which in its final version included foreign direct investment in the
CCP. Presumably, this was essential to prepare the EU for the conclusion of an investment
agreement as an outcome of multilateral negotiations, in other words to match EU competence
with all aspects under negotiation in the Doha Round. 95 Although the Constitutional Treaty was
never ratified, FDI remained an integral part of the CCP in the Lisbon Treaty. Additionally,
stagnation in the Doha Round negotiations triggered the EU to repeal its seven-year moratorium
on bilateral trade negotiations 96 and instead strategically focus on the protection of the EU’s
interest through a strengthening of its bilateral network. 97

Rather than further enabling EU interaction in the multilateral trading system, the new CCP
enables the EU to approach important trading partners and progressively build a more
comprehensive web of bilateral relations. 98 Although the EU is currently approaching China for
the negotiation of a bilateral investment treaty (BIT), it is likely that investment protection will
above all be integrated into large and complex free trade agreements such as those under

88
GATT Ministerial Declaration on the Uruguay Round, (20 September 1986),
https://docs.wto.org/gattdocs/q/1986_90.HTM (accessed 16 September 2015).
89
Opinion 1/94, WTO Agreement ECR I–5267, para. 47 and 71 regarding trade in services and intellectual property
rights, respectively (1994).
90
Treaty of Nice, Art. 2(8) on Art. 133(5), OJ C 80, (10 March 2001).
91
Treaty of Lisbon, Art. 2 (12) on Article 2B, and Art. 2(158) on Article 188 C; these are now Arts. 3 and 207
TFEU, respectively, OJ C 306 (17 December 2007).
92
Opinion 1/08, GATS Schedules, ECR I–11129, para. 119 (2009).
93
Case C-414/11, Daiichi Sankyo Co. Ltd. v. DEMO (8 July 2013), nyr.
94
WTO, Doha Work Programme, Decision Adopted by the General Council on 1 August 2004, pt. 1.g, WT/L/579
(02 August 2004).
95
Treaty establishing a Constitution for Europe, Art. III-315, OJ C 310, (16 December 2004).
96
Commission Staff Working Document, Report on Progress Achieved on the Global Europe Strategy, 2006-2010,
3SEC(2010) 1268/2, http://trade.ec.europa.eu/doclib/docs/2010/november/tradoc_146941.pdf (accessed 16
September 2015).
97
See Boris Rigod, "Global Europe": the EU's new trade policy in its legal context, 18(2) Columbia Journal of
European Law, 277, 279-80, 287-88 and 284-85 (2012); Document Global Europe Strategy, SEC(2010) 1268/2, 14-
18; European Commission, EU Trade Relations World Wide – a
Map,http://trade.ec.europa.eu/doclib/docs/2012/june/tradoc_149622.jpg (accessed 16 September 2015).
98
Marc Bungenberg, ‘The Politics of the European Union’s Investment Treaty Making’ in Tomer Broude, Marc L.
Busch and Amelia Porges (eds), The Politics of International Economic Law (Cambridge University Press 2011).

50
negotiation with Canada, the US and Japan. 99 The broad material scope of the EU’s ‘new
generation’ of trade agreements renders ‘mixity’ an inevitable reality. Mixed agreements have
become a phenomenon of particular practical significance to EU external relations.100
Concluding the international agreement together and alongside its 28 Member States, the EU
circumvents the sensitive issue of determination of competences during the negotiation of an
international agreement and assures legality of that agreement in its entirety. 101 On the downside,
mixed agreements merely defer the competence question, which can arise at a later stage in
relation to disputes under the international agreement.

The consolidated draft text of the Comprehensive Economic Trade Agreement (CETA) with
Canada adopts a North American model in its investment chapter, extending protection to
investments in the pre-establishment phase. 102 CETA also includes a sophisticated ISDS
mechanism as well as a state-to-state arbitration mechanism that displays innovative drafting
choices and indicates that CETA might be used as a template for future EU investment
agreements, such as the Transatlantic Trade and Investment Partnership (TTIP), which the EU is
currently negotiating with the US.

4. Conflict or compatibility? An evaluation of investment arbitration in the light of the

principle of autonomy.

4.1 Investor-state arbitration

Despite the fact that the role and structure of investment arbitration is not directly comparable to
the EEA court or the EPCt,103 it has so far been demonstrated that the CJEU has adopted a
rationale that expresses generic concerns. In what follows, it will be examined whether ISDS
provisions in EU investment agreements affect the allocation of competences under the EU
Treaties and, inter alia, deprive the CJEU of its judicial prerogatives.

99
Ibid., 138 and 149.
100
There is significant scholarly writing attempting to establish a typology of such ‘mixity’ situations. Leaving aside
to what extent such efforts are practical, it is important for this contribution to notice that all types of mixed
agreements have in common that they cover, at least in part, material aspects which are not part of the Union’s
exclusive competence under primary law (i. e. Article 3 TFEU). Whether or not these non-exclusive competences
rest with the Member States alone or are shared with the EU is irrelevant for the external perspective this
contribution is describing. Eeckhout (2011), 213-214; Marc Maresceau, ‘A Typology of Mixed Bilateral
Agreements’ in Christophe Hillion and Panos Koutrakos (eds), Mixed Agreements Revisited, 11 (1st ed., Hart
Publishing 2010); Allan Rosas, ‘The European Union and Mixed Agreements’ in Alan Dashwood and Christophe
Hillion (eds), The General Law of EC External Relations, 200, 203-207 (Sweet and Maxwell 2000).
101
Herrmann notes that a likely scenario for the involvement of the CJEU in the negotiation of EU investment
agreements is a reference by the European Parliament to bring clarity on the scope and nature of EU competence for
the particular agreement. He points out the considerable political costs for such uncertainty which ‘mixity’ prevents.
See Christoph Herrmann, The Role of the Court of Justice of the European Union in the Emerging EU Investment
Policy, 15(3-4) The Journal of World Investment and Trade, 570, 574-575 (2014); see also Esa Paasivirta and Pieter
Jan Kuijper, Does one size fit all?: The European Community and the responsibility of international organizations,
36 Netherlands Yearbook of International Law,169, at 177-178 (2005).
102
Marie-France Houde and Katia Yannaca-Small, Relationships between International Investment Agreements
(OECD Working Papers on International Investment 2004/01, 2004).
103
Dimopoulos (2014), 1698.

51
It was already established that international agreements form an integral part of the EU legal
order 104 and require consistent interpretation of secondary EU law. 105 Albeit in limited
circumstances, the CJEU is charged with the task of reviewing the legality of legal acts of EU
institutions or Member States in the light of international agreements. 106 The CJEU is limited in
its interpretation of an EU legal act, in so far as it is asked to assess its compatibility with an EU
investment agreement, in regards to which an investment tribunal has already rendered an award.
A contrario, the CJEU is not bound to follow the investment award if the alleged incompatibility
concerns the Treaties.

One might object that the jurisdiction of an investment tribunal is limited to the adjudication of a
particular dispute and to that extent concerns the interpretation and application of the investment
agreement only. It cannot be denied, however, that the broad reach of investment standards
carries the potential to impact on a wide range of EU policies. As Advocate General Léger
remarked with respect to the activity of the WTO Dispute Settlement Body, “…they would
inevitably determine the Court’s interpretation of the corresponding rules of Community law.
Such an outcome would jeopardise the autonomy of the Community legal order in the pursuit of
its own objectives.” 107 Indeed, investor-state tribunals are involved in the interpretation of EU
law as either domestic or international law. Even though recent awards have demonstrated
disagreement on precisely this question, they leave no doubt that investor-state tribunals are
faced with essential questions of EU law. 108Considering EU law as applicable international law,
the investment tribunal expressly engages in its interpretation and application within the
framework of the dispute. But even if the tribunal considers EU law as applicable domestic law,
and as such as a matter of fact, 109it does not render its involvement in the interpretation of EU
law merely incidental. The core task of investment tribunals is to substantively assess the
compatibility of legal acts with the broad investment protection standards established under the
investment agreement. Even though, unlike the EPCt, investment tribunal do not replace
domestic or EU courts in the application of EU law, they are nonetheless deeply invested in its
interpretation, which constitutes an essential activity of the investment tribunal’s principal role
under the investment agreement. Opinion 2/13 supports the view that an international agreement
that empowers a judicial body other than the CJEU with the assessment of EU law vis-à-vis

104
Art. 216(2) TFEU.
105
Case C-61/94, Commission v. Federal Republic of Germany, para. 52, ECR I-03989 (1996); Case C-286/02,
Bellio F.lli Srl v. Prefettura di Treviso, para. 33, ECR I-3479 (2004); Case C-344/04, International Air Transport
Association v. Department for Transport, para. 35, ECR I-443 (2006); see also Rosas (2011), 1309-1311.
106
Eeckhout (2011), 292 ff; Herrmann (2014), 574.
107
Opinion of Advocate General Léger in Case C-351/04, Ikea Wholesale Ltd v Commissioners of Customs &
Excise ECR I-7723, paras. 78 and 79 (2007); see also inter alia Hix on the assessment of the WTO Dispute
Settlement Body in the light of the autonomy of the EU legal order, see Jan-Peter Hix, Indirect Effect of
International Agreements: Consistent Interpretation and other Forms of Judicial Accomodation of WTO Law by the
EU Courts and the US Courts, Jean Monnet Working Paper 03/13, 96 and 97 (2013),
http://jeanmonnetprogram.org/wp-content/uploads/2014/12/Hix.pdf (accessed 17 September 2015) .
108
Recent intra-EU investment awards reflect the very substantive involvement of investment tribunals in the
interpretation of EU law. See, Eastern Sugar B.V.(Netherlands) v. The Czech Republic, SCC Case No 088/2004(27
March 2007); Electrabel S. A. v. Hungary, ICSID,Case No. ARB/07/19 (30 November 2012); Ioan Micula, Viorel
Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No.
ARB/05/20 (11 December 2013).
109
Electrabel, pt. 4.127.

52
broadly defined international standards directly invokes concerns of incompatibility with the EU
Treaties. 110

Consequently, investment awards bind the CJEU in so far as the interpretation of the investment
agreement is concerned, extending to the interpretation of secondary EU law in the light of that
agreement. Rather than the implementation of the investment agreement investor-state tribunals
are concerned with the resolution of individual disputes and carry interpretive authority to that
extent. Their judicial function can be characterized as a review of EU legal acts vis-à-vis
investment standards that are stipulated in the investment agreement. In the exercise of its own
judicial function under Article 19 TEU the CJEU is effectively restrained by the investment
tribunal’s interpretation. This is not to say that every engagement of the tribunal with EU law
will bind the CJEU in its interpretation and application of EU law internally, but the risk exists
and is particularly imminent where the contested legal act is an EU regulation or directive with a
broad scope of application. Arguably, an express exclusion of direct effect of the agreement
prevents it from being fully integrated into the EU legal order and limits the involvement of the
CJEU in the interpretation of the agreement. 111 Indeed, this has been the practice in recent EU
trade agreements 112 including CETA, which provides for an exclusion of private rights, 113 and
excludes investors from initiating treaty-based claims before domestic courts or the CJEU. It
does not, however, prevent legality challenges to secondary EU law that are initiated by EU
institutions or the Member States, and thus presents and insufficient safety mechanism.

The substantive involvement of investor-state tribunals in the interpretation of EU law poses

other, more generic problems in view of the principle of autonomy, too. Despite acknowledging
the need for the establishment of judicial bodies as an indispensable element of EU external
relations, 114 the CJEU has always placed strong emphasis on the condition that the essential
characteristics of powers transferred under the Treaties remain unaltered. 115 According to Article
19 TEU it remains the prerogative of the CJEU to review the legality of EU law. 116 We have
already seen, however, that investment tribunals take over this role for the assessment of EU
legal acts under the investment agreement. 117 The proactive way in which contracting states
expressed their consent to arbitration in ISDS provisions portrays investor-state tribunals as de
facto fulfilling the function of international adjudicative review of domestic legislation. 118 ISDS
provisions are designed for the benefit of an objectively defined, broad and generally unknown
group of claimants that have no prior relationship with the state as regarding the investment.119

110
Opinion 2/13, Accession to the ECHR, para. 246.
111
Schill (2015), 385.
112
Ibid.; Aliki Semertzi, The Preclusion of Direct Effect in the Recently Concluded EU Free Trade Agreements,
51(4) Common Market Law Review, 1125 (2014).
113
Consolidated CETA Draft Text, Ch. 33, Art. 14.15
114
Opinion 1/91,EEA agreement, para. 40; Opinion 1/09,European Patents Court, para. 74.
115
Opinion 1/09, European Patents Court, para. 76; Opinion 2/13, Accession to the ECHR, para. 183.
116
Herrmann (2014), 574.
117
Lavranos remarks that the pre-Bosphorus case law of the ECtHR also reflects a de facto review of EU legal acts
vis-à-vis the ECHR, see Lavranos (2010), 399.
118
Stephan W. Schill, ‘International Investment Law and Comparative Public Law – an Introduction’ in Stephan W.
Schill (ed), International Investment Law and Comparative Public Law, 3, 10-17 (2010);Van Harten and Loughlin
(2006).
119
Van Harten (2008), 63; Van Harten and Loughlin (2006), 128. Applicable law and dispute resolution clauses in
investment contracts depend very much on the bargaining power of the parties in the negotiation process, the

53
Other than commercial arbitration consent in investment arbitration emanates directly from the
contracting states’ sovereign power. 120

As a result investment arbitration has broader and more systemic implications on the regulatory
policy space of contracting states than commercial arbitration. Under EU investment agreements
the investment tribunal will express itself on the compatibility of regulatory acts of the Member
State or the Union with broad and extensive investment standards. In other words, investment
tribunals exercise an adjudicative review of the legality of EU legislation, resulting in the award
of monetary compensation. 121 The investor-state tribunal exercises a judicial function that is not
only reserved to the CJEU under the Treaty, but also regularly unavailable to EU investors in the
internal market.

Furthermore, it must be remembered that there is practically no involvement of the domestic

courts or CJEU once investment arbitration has commenced; nor do the procedural frameworks
provide for any means of judicial review of investment awards. 122 It is, thus, essentially
impossible for the EU to comply with its international legal obligations in the enforcement of
investment awards, whilst simultaneously guaranteeing uniform interpretation of EU law. The
exclusion of domestic courts from the investment arbitration process only exacerbates this
conflict. It is clear from Opinion 1/09 that domestic courts assume responsibilities under Article
267 TFEU in their role as ordinary courts of the EU legal order. The ‘judicial dialogue’ between
domestic courts and the CJEU presents a safety mechanism, which guarantees indirect control of
the CJEU over the interpretation and application of EU law even where this becomes relevant in
international frameworks to which the EU is not privy. As a consequence of domestic courts
being excluded from the investment arbitration, the CJEU has neither direct nor indirect control
over the interpretation of EU law that is carried out by investment tribunals in the process of
their adjudicative review. 123 It was furthermore pointed out above that a broad reading of
Opinion 2/13 allows for the conclusion that the existence of a prior involvement mechanism for

investor will generally try to protect its own interest as much as possible. This is not the case in investment treaties
where the investor has no actual influence on the content of the treaty text. Considering also the fact that investment
contracts may include renegotiation clauses, their contractual character – as opposed to the sovereign character of
investment treaties – becomes even more obvious, see Dolzer and Schreuer (2012), 81, 85-86, respectively.
120
Christoph Schreuer, ‘Consent to Arbitration’ in Peter Muchlinski, Federico Ortino and Christoph Schreuer (eds),
The Oxford Handbook of International Investment Law (Oxford University Press 2008), 835; Van Harten (2008),
64.
121
To that extent implicitly, Steffen Hindelang, Circumventing Primacy of EU Law and the CJEU’s Judicial
Monopoly by Resorting to Dispute Resolution Mechanisms Provided for in Inter-se Treaties? The Case of Intra-EU
Investment Arbitration, 39(2) Legal Issues of Economic Integration,179, 202 (2012); Semertzi (2014), 1138.
122
The enforcement of non-ICSID awards can in limited circumstances be refused under Article V of the New York
Convention of 1958. The CJEU in EcoSwiss stated that enforcement must be refused where it would otherwise
infringe on principles of EU public policy. Nevertheless, a refusal of enforcement does not affect the substance of
the arbitral award and thus leaves the tribunal’s potential expression on EU law unaffected. The possibility to review
arbitral awards depends, on the other hand, on the domestic arbitration law which in most cases includes limited
grounds of grave misconduct that allow the annulment of the initial award. ICSID, on the other hand, does not
require exequatur proceedings – rendering ICSID awards directly enforceable – and foresees a system-internal
review procedure that does not involve domestic courts. See Dolzer and Schreuer (2012), 300-301, 310.
123
Burgstaller argues for the need of a Treaty amendments to facilitate a recognition of investment tribunals as
‘courts or tribunals of a Member State’ in the meaning of Article 267 TFEU by the CJEU and, thus, accommodate
for the consequences of Opinion 1/09. See Markus Burgstaller, Investor-State Arbitration in EU International
Investment Agreements with Third States, 39 Legal Issues of Economic Integration, 207 (2011).

54
the CJEU has become an independent element of the principle of autonomy. 124 EU investment
agreements, however, are unlikely to include preliminary reference mechanisms that are binding
on the investment tribunal, which in itself could represent a violation of the principle of
autonomy.

Ramifications of the lack of involvement of the CJEU or domestic courts in the interpretation of
EU law aspects during the investment arbitration is best illustrated by Micula-scenario which
demonstrates that the payment of an investment award can, under certain circumstances, amount
to illegal State aid. 125 Although it must be kept in mind that Micula concerns an intra-EU BIT,
the conflict at the heart of the dispute is transferable to the context of EU investment agreements.
EU competition rules, including provisions on state aid, are applicable to all players on the
internal market. This includes foreign-owned companies that can seek protection under EU
investment agreements with, for instance Canada or the US. Despite the fact that investment
awards pose a conflict to Article 107 TFEU only where the award effectively re-installs illegal
state aid, 126 this might become relevant with regards to certain tariff schemes in the photovoltaic
energy sector that have recently been revoked in a few southern and eastern European
countries. 127 Thus, viewing investment arbitration as a means of international judicial review, it
must be concluded that the tribunal encroaches on the essential characteristics of powers
conferred upon the CJEU under Articles 19 TEU and 267 TFEU.

Opinion 1/91 was unambiguous on the fact that EU agreements cannot transfer on international
courts and tribunals the power to interpret the allocation of competences within the EU. 128
Opinion 2/13 reiterated that such an assessment is inherent in the attribution of responsibility for
the purpose of determining the respondent to a dispute before the ECtHR. 129 Under traditional
BITs, investment tribunals are asked to confirm that the state against which the investor has
brought the claim is the contracting party to the agreement, of which the investor is not a
national. In a multi-layered system such as the EU, on the other hand, the allocation of the
respondent status requires an assessment of the attribution of competences between the Member
States and the EU. 130 Carrying out such an assessment, investment tribunals engage in an
interpretation of primary EU law.

Internally, the allocation of respondent status is governed by the principle of sincere cooperation
under Article 4(3) TEU, as well as the recent Council Regulation on the framework for managing
financial responsibility in investor-to-state dispute settlement tribunals, established under EU

124
Opinion 2/13, Accession to the ECHR, para. 246.
125
The Commission has initiated procedures under EU state aid control, subsequent to Art. 108(2) TFEU in October
of 2014 claiming that the enforcement of the investment award in that case would violate EU state aid rules. See
Commission Notice 2014/C 393/03 to Romania, State aid SA.38517 (2014/C) (ex 2014/NN), OJ C 393/27 (7
November 2014); for a discussion of the case see Ortolani (2015), Tietje and Wackernagel (2015).
126
Ortolani (2015), 125-28; Tietje and Wackernagel (2015), 221-23.
127
Ortolani (2015), 126-27.
128
Opinion 1/91,EEA agreement, paras. 34-36.
129
Opinion 2/13,Accession to the ECHR, paras. 221, 224 and 225.
130
Steffen Hindelang, ‘The Autonomy of the European Legal Order’ in Marc Bungenberg and Christoph Herrmann
(eds), Common Commercial Policy after Lisbon: Special Issue, European Yearbook of International Economic Law,
187, 187, 196 (Springer 2013).

55
investment agreements as a specific expression of that principle. 131 Despite a prima facie
presumption that Member States are acting as respondents to investment disputes, the Regulation
provides the European Commission with substantial powers to assume the respondent status,
following a “…full and balanced factual analysis and legal reasoning.” 132 The Regulation largely
follows the internal allocation of competences, 133 though it reserves to the Commission the
power to intervene in cases where the disputed treatment is afforded by the Member State but EU
interests are at stake. 134 It is conceivable that the Regulation might serve as a gateway to a
single-respondent system, not unlike that of EU representation in the WTO Dispute Settlement
Body. 135

This being said, the Regulation is not applicable in the arbitration. Externally, therefore, the
investor-state tribunal is first and foremost looking at the investment agreement for guidance.
Where the agreement is concluded exclusively by the EU the questions is unproblematic,
because only the EU act as respondent in disputes. As far as mixed agreements are concerned, it
is for the tribunal to assess whether it is the Member State or the EU that is competent for the
contested legal act. Lacking specific reference in the text of the agreement, the tribunal will have
to resort to the EU Treaties in order to answer that question. The CJEU confirmed in Opinion
2/13 that the attribution of an act or omission that directly follows the application of EU law
rules on the division of powers requires an assessment of the allocation of competences. 136
Consequently, in determining the respondent to an investment dispute, the investment tribunal
inevitably engages in an assessment of the allocation of competences within the EU. 137

EU agreements have included safeguards, which prevented international courts and tribunals
from taking that determination. The second EEA draft agreement achieved this by way of a
complete institutional separation of the two-tier judicial systems. Albeit effective, it is needless
to say that such an approach is highly inadequate for EU investment agreements. 138 Likewise, ex
ante declarations of competences 139 are of limited value in a field of dynamic and rapidly
131
European Parliament and the Council, Regulation 912/2014 establishing a framework for managing financial
responsibility linked to investor-to-state dispute settlement tribunals established by international agreements to
which the European Union is party, OJ L 257/121 (28 August 2014).
132
Ibid., Art. 9.
133
Ibid., Art. 1.
134
Jan Kleinheisterkamp, Financial Responsibility in the European International Investment Policy, LSE Law,
Society and Economic Working Papers 15/2013, (2013) http://www.lse.ac.uk/collections/law/wps/WPS2013-
15_Kleinheisterkamp.pdf (accessed 17 September 2015).
135
Communication from the Commission to the Council, the European Parliament, the European Economic and
Social Committee and the Committee of the Regions, Towards a comprehensive European international investment
policy, COM(2010)343 final, 10(2010); Burgstaller (2014), 568; Stijn Billiet, The EC and WTO Dispute Settlement:
The Initiation of Trade Disputes by the EC, 10(2) European Foreign Affairs Review,197 (2005).
136
Opinion 2/13,Accession to the ECHR, paras. 221, 224, 225.
137
Angelos Dimopoulos, EU Foreign Investment Law, 254-255 (Oxford University Press 2011); ILC Draft articles
on the responsibility of international organizations, Part I, Chapter II on the attribution of conduct to an international
organization.
138
Opinion 1/92,Amended Draft EEA Agreement, paras. 13, 19; the Court later elaborated upon this in its ECAA
Opinion, stating in general terms that an institutional separation of judicial bodies secures conformity with the
autonomy of the EU legal order, Opinion 1/00,European Common Aviation Area, para. 6; such an approach would
most certainly also have to meet reciprocal demands by the other contracting party during the negotiation of the
agreement, rendering the entire mechanism practically obsolete. Hindelang (2013), 196-197.
139
e.g. Council Decision 98/392/EC of 23 Mar 1998 concerning the conclusion by the European Community of the
United Nations Convention of 10 December 1982 on the Law of the Sea and the Agreement of 28 July 1994 relating

56
expanding international competences such as the CCP. 140 The most suitable option for
investment agreements is a mechanism that reserves the determination of competences to be
addressed by the EU as an internal question, in accordance with the Regulation.

As an example of that approach serves the declaration of transparency under Article 26 of the
Energy Charter Treaty (ECT) 141 and CETA. Whilst the mechanism in the ECT remains optional
for investors, a request to the Commission on the determination of the respondent to an
investment claim is mandatory under CETA. 142 Accordingly, upon request by the investor the
Commission has to render a decision on the respondent to the dispute within 50 days. The
decision is binding on the investor-state tribunal. 143 Although this largely eliminates the risk of
the investor-state tribunal entering in any discussion on the allocation of competences in the EU,
CETA provides for a residual loophole. It is for the individual investor to identify the responding
party if the Commission fails to provide a decision within the requisite time period. In that event,
the EU or the Member States are prevented from contesting the admissibility of the dispute, or
otherwise object to the claim or the award on the grounds of improper determination of the
respondent. 144 In certain limited situations, therefore, it remains for the investor-state tribunal to
confirm the choice of the respondent. In light of the fact that the Commission decision is subject
to judicial review before the CJEU, exceeding a 50-day time limit presents more than just a
remote risk. It is true that such a residual mechanism proves essential to safeguard the arbitration
process from being hijacked by internal EU legal and political struggles, but it nevertheless
presents a violation of the principle of autonomy because it invites investment tribunals, albeit in
limited circumstances, to confirm the investor’s assessment of the allocation of competences
within the EU.

It follows that the future of ISDS provisions in EU investment agreements is far from certain.
The involvement of investment tribunals in the interpretation of EU law and the legal review of
EU legal acts vis-à-vis broadly defined treaty standards is likely to violate the essential
characteristics conferred upon the Court under Article 19 TEU. Additionally, a broad reading of
Opinion 2/13 allows for the conclusion that the prior involvement of the CJEU has become a
prima facie condition of the principle of autonomy, one that EU investment agreements are
unlikely to fulfill. Lastly, the involvement of the investment tribunal in the attribution of the

to the implementation of Part XI thereof, OJ L 179, 1-2(23 June 1998); Council Decision (Annex) 2005/370/EC of
17 February 2005 on the conclusion, on behalf of the European Community, of the Convention on access to
information, public participation in decision-making and access to justice in environmental matters, OJ L 124, 3 (17
May 2005); Council Decision (Annex) 2006/730/EC of 25 September 2006 on the conclusion, on behalf of the
European Community, of the Rotterdam Convention on the Prior Informed Consent Procedure for certain hazardous
chemicals and pesticides in international trade, OJ L 299, 25(28 October2006).
140
The EU usually submits this sort of declaration only where the participation clause of an international agreement
so demands, see Andres Delgado Casteleiro, EU declarations of competence to multilateral agreements: a useful
reference base? 17(4) European Foreign Affairs Review, 491, 494, 498 (2012).
141
Statement submitted by the European Communities to the Secretariat of the Energy Charter Treaty pursuant to
Article 26(3)(b)(ii) of the Energy Charter Treaty, OJ L 69, 115 (09 March 1998).
142
Tietje and Wackernagel (2015), 239.
143
Consolidated CETA Text, Ch. 10, Article X.20, (26 September 2014),
http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf (accessed 17 September 2015); See also
Luca Pantaleo, Investment disputes under CETA. Taking the best from past experience?, 63.
144
Id. Art. X.20, para. 5 and 6.

57
respondent status requires an assessment of the division of competences within the EU - an
activity that violates the principle of autonomy. 145

4.2 State-to-state arbitration

It was demonstrated above that Article 344 TFEU prevents Member States from resolving
disputes before an international court or tribunal if the subject matter of the dispute is covered by
exclusive EU competence. The Court’s reasoning in MOX Plant, which has attracted extensive
scholarly discussion in regards to intra-EU relations, was already discussed above. 146 It is argued
here that Article 344 TFEU may become relevant to dispute resolution under EU investment
agreements in two ways. First, Member States are prevented from initiating arbitration where the
subject matter of the dispute falls under EU competence. Arguably, these instances are extremely
limited. Investment disputes brought by an EU Member State against a third country are unlikely
to require the assessment of an EU legal act.

More importantly, Article 344 TFEU is triggered where a third country initiates proceedings
against a Member State before a state-to-state tribunal. Because state-to-state investment
arbitration requires consent of the contracting party to be expressed before the tribunal can
assume jurisdiction, Member States are restrained from consenting to arbitration where the
subject matter of the case falls within EU competence. State-to-state tribunals are directly
concerned with the implementation of the investment agreement to a much greater extent than
investor-state tribunals. If the CJEU comes to the conclusion that the entire investment
agreement falls within the scope of exclusive EU competence under the CCP, only the EU can
act as a respondent to state-to-state investment arbitration. The same follows from the Member
States’ duty of cooperation, to the extent that it requires Member States to facilitate the
attainment of EU objectives and the jurisdiction of the CJEU.147 Article 13 (b) and (c) of the EU
regulation establishing transitional arrangements for bilateral investment agreements between
Member States and third countries further supports this conclusion. 148 Accordingly, Member
States are required to fully cooperate with the Commission where dispute resolution mechanisms
under existing BITs with third countries are activated.

That being said, both these aspects define responsibilities of Member States towards the EU149
and do not, therefore, pose a challenge to the conclusion of investment agreements with
provisions on state-to-state arbitration. Suffice it to say that more research is needed on the
external dimension of Article 344 TFEU and the obligations it imposes on Member States in the
resolution of disputes before international courts and tribunals.

145
For an opposing view see Herrmann (2014).
146
Schill (2015), 384.
147
Neframi (2010), 349-350.
148
European Parliament and Council, Regulation 1219/2012establishing transitional arrangements for bilateral
investment agreements between Member States and third countries further supports this conclusion, OJ L 351/40,
(20 December 2012).
149
Eeckhout (2011), 247.

58
5. Future challenges and conclusions

This paper discussed possible EU law challenges to investment arbitration under future EU
investment agreements in the light of the principle of autonomy. It demonstrated that the judicial
activity of investment tribunals, particularly that of investor-state tribunals, is akin to an
adjudicative review of EU legal acts vis-à-vis the investment agreement. This does not only
restrain the CJEU in the exercise of its task to interpret EU law, at the very least to the extent that
the interpretation of secondary EU law in the context of the EU agreement is concerned. More
importantly, it entrusts upon investment tribunals a judicial task that is reserved to the CJEU
under the Treaty, and thus affects the essential characteristics of powers that the principle of
autonomy was construed to be protecting. Reviewing the CJEU’s case law and analyzing its
reasoning on the compatibility of international courts and tribunals with the principle of
autonomy, it transpires that the Court has gradually developed this principle more restrictively.
The CJEU has shown persistence in its will to protect the integrity of the EU legal order from
external influences. Yet, what the Court protects more than the integrity of EU law is its own
institutional prerogatives; nothing makes that clearer than Opinion 2/13.

Although it is undisputed that the principle of autonomy proved crucial to the establishment of
the internal market during the political stalemate in the 1960s, recent developments have not
been guided by a desire to implement the Treaties with the greatest effectiveness. Commitments
in the Treaties regarding more openness to international law and participation in international
regimes coincided with a more restrictive application of the principle of autonomy to
international judicial bodies by the CJEU. If the CJEU continues this trend and lacks the
willingness and creativity to find the kind of pragmatic solutions by virtue of which the CJEU
made its reputation in Van Gend and Costa, it alone will present the greatest challenge to the
international development of the EU. Obstructing the EU in the fulfillment of its international
obligations neglects important political and legal realities. 150 If the CJEU, for instance, insists on
its prior involvement in investment arbitration, it unilaterally introduces domestic courts into the
arbitration process, an objective that ISDS provisions were designed to prevent. 151 The EU might
be a legal order that is self-referential, but in a global world that is defined by the proliferation of
international regimes with its own judicial bodies it sure is not self-sufficient; it is autonomous,
not autarkic.

Indeed, many of the shortcomings can be remedied through innovative drafting of the ISDS
provisions, 152 although it remains to be seen whether all can be addressed in the political
compromise that international trade and investment agreements necessarily represent. 153 Without

150
Lavranos (2010), 394-395 and 408-409.
151
Schill (2015), 286.
152
Hannes Lenk, Investor-state arbitration under TTIP: Resolving investment disputes in an (autonomous) EU legal
order, SIEPS Report 2015:2(2015); Schill (2015).
153
Schill notes that ”[o]nly an EU that is empowered to participate actively in, and fully submits to binding
international dispute settlement, is able to demand the same of other countries, and thereby contribute to shaping the
future world order according to its own values.” See Schill (2015), 288.

59
a change in the Court’s attitude towards the interpretation and application of the principle of
autonomy, it is difficult to see how the current situation could be resolved. 154

The EU institutions have reinforced their commitment to conclude TTIP, including a modernized
ISDS system. The new Trade Commissioner Cecilia Malmström has so far kept her promise to
increase transparency in the TTIP negotiations and address public concern with regards to ISDS.
The EP has recently provided democratic support for a modernization of the traditional ISDS
mechanism. 155 And there are opportunities for the CJEU, too. The Commission announced its
intention to refer the EU-Singapore FTA to the CJEU under Article 218(11) TFEU; the reference
is above all supposed to shed some light on the scope of the EU FDI competence, but might
allow the Court to also consider the ISDS provisions. 156 The CJEU will furthermore pronounce
itself on the enforcement of the Micula award with EU rules on State aid. 157 One can only hope
that the Court will craft its reasoning carefully and take the opportunity to settle just how much
judicial intervention in the arbitration process is required. It is time for the CJEU to depart from
its strict pluralistic argumentation and embrace its role as an international court, by focusing on
the facilitation of interaction with other international legal regimes, rather than concentrating
strictly on the delimitation of an autonomous EU legal order.

154
Tietje and Wackernagel propose the coordination of competing legal orders that is based on the Bosphorus-
principle and focuses on investment tribunals and the European Commission exercising self-restriction in relation to
EU state aid rules, Tietje and Wackernagel (2015), 241-44.
155
European Parliament, Plenary 8 July 2015, Minutes, pt. 4.1.
156
Commission Press Release, Singapore: The Commission to Request a Court of Justice Opinion on the trade deal,
Brussels, (30 October 2014), http://europa.eu/rapid/press-release_IP-14-1235_en.htm (17 September 2015).
157
Case T-646/14, Micula v. Commission, nyr.

60
Investment disputes under CETA. Taking the best from past experience?
Luca Pantaleo∗

1. Introduction

The text of the Comprehensive Trade and Economic Agreement (CETA) between Canada and the
European Union has been finalised, published and opened to ratification at the time of writing.1
In brief, CETA is a complex and broad trade agreement. Its purpose is to liberalise the economic
relations between the parties in virtually all economic sectors, from trade in goods and services to
public procurement and investment. CETA is supposed to inaugurate what the Commission has
labelled – somewhat emphatically - the “latest generation of competitiveness-driven Free Trade
Agreements (FTAs)”, whose purpose is “inspired by the objective of unleashing the economic
potential of the world's important growth markets to EU trade and investment”. 2 A similar
agreement with Singapore lies supposedly at the same stage. 3 However, CETA’s destiny appears
to be unclear at the moment. The heated controversies surrounding the Transatlantic Trade and
Investment Partnership (TTIP) with the USA have allegedly put CETA on hold. 4 The economic
impact of CETA is much less far-reaching than its more (un)popular American counterpart. 5 The
nature and the content of the two deals is, however, very similar. Hence, it should come as no
surprise that the opposition to TTIP has made its way to CETA.

One of the main points of concern is the investment chapter that is supposed to be included in
both agreements. Opponents have targeted, in particular, the inclusion of investor-to-state dispute
settlement (ISDS). Bilateral investment treaties (BITs) are essentially a European invention.
Traditionally, European countries have championed BITs, and European investors have made
widespread use of investment arbitration. 6 The very first BIT was concluded by Germany in
1959, followed by France, the Netherlands, Italy, the Belgium-Luxembourg Union, Sweden, and
Denmark in the early 1960s. 7 Austria and the United Kingdom were latecomers, each concluding

∗ With the usual disclaimer, the author wishes to thank Professor Paolo Palchetti, Professor Matthew Happold and
Johann Ruben Leiss for their valuable comments to an earlier draft of this chapter.
1
See the general overview provided at http://ec.europa.eu/trade/policy/in-focus/ceta/.
2
See European Commission, ‘Towards a Comprehensive European International Investment Policy,
Communication from The Commission to The European Parliament, the Council, the European Economic and
Social Committee and The Committee of The Regions’, COM/2010/343, 7 (7 July 2010).
3
See the general overview provided at http://ec.europa.eu/trade/policy/countries-and-regions/countries/singapore/
(accessed 6 August 2015). The agreement with Singapore, however, will only marginally be mentioned in this
chapter.
4
See Hans Von Der Burchard, Oh, Canada: Surprise loser in US-EU trade deal,
http://www.politico.eu/Art./canada-may-be-loser-in-us-eu-trade-deal/ (accessed 6 August 2015).
5
While CETA is supposed to generate a €12 billion increase for EU’s GDP, TTIP will admittedly generate more
than ten times as much. See Joseph François, Miriam Manchin, Hanna Norberg, Olga Pindyuk and Patrick
Tomberger, Reducing Transatlantic Barriers to Trade and Investment. An Economic Assessment, Centre for
Economic Policy Research, vii (London, 2013).
6
See Joseph Weiler, European Hypocrisy: TTIP and ISDS, EJIL: Talk! http://www.ejiltalk.org/european-hypocrisy-
ttip-and-isds/ (accessed 6 August 2015).
7
This list does not include non-EU member states like Switzerland.

61
their first BIT in the mid-1970s. 8 Despite this, ISDS does no longer seems to be in the good
graces of (some) European countries and their respective publics. There seems to be widespread
concern in Europe “that investors would be able to sue governments whenever particular laws are
not to their liking, and demand enormous compensation payments for foregone profits”. 9

The aim of this article is rather straightforward. It tries to shed light on some myths and realities
surrounding CETA by comparing it with existing Member States BITs, and with investment
treaties adopted on the other side of the Atlantic. 10 The analysis is focused on ISDS. Attention is
devoted to provisions concerning exclusively procedural aspects of the investment dispute
mechanism laid down by CETA. This chapter will not compare CETA with all EU Member States
model BIT. That would be redundant and perhaps useless. The comparison will be limited to a
handful of such treaties chosen because of their ability to represent the European template. 11 In
particular, the German, British and Dutch BIT will be used. These agreements will be collectively
– although non-technically - referred to as ‘European BITs’. 12

At the time of writing it appears that CETA’s text commented in this article may be re-negotiated
to incorporate an ISDS similar to the proposed so-called TTIP investment court system. 13 The
recently elected new Canadian government seems to be open to such option provided that it will
not further delay the conclusion of CETA. 14 It is unclear at the moment whether, and if yes how
and to what extent, this adaptation will be implemented. The analysis conducted in the following
pages will, as a consequence, only be focused on CETA’s ISDS as it currently stands, namely as
an improved version of (traditional) investment arbitration.

More specifically, the article will provide an overview of the main procedural aspects of CETA’s
ISDS. Needless to say, not all procedural aspects of investment disputes are examined. I have
selected those ones that, in my view, represent an improvement with respect to existing
investment instruments. Some general conclusions will be presented in the closing section, in an
attempt to provide an – at least partial – answer to the question in the title to this chapter. In
8
See Kenneth J. Vandevelde, A Brief History of International Investment Agreements, 12 UC Davis Journal of
International Law and Policy, 157, 169-170 (2005).
9
See Kay Alexander Scholz, Germany puts CETA free trade deal with Canada on hold, http://www.dw.de/germany-
puts-ceta-free-trade-deal-with-canada-on-hold/a-17940554 (accessed 6 August 2015).
10
The agreements compared will include NAFTA, US Model BIT and Canada-Benin BIT. The reason for which the
latter has been chosen is quite simple. Canada’s model BIT has been formally amended for the last time in 2004.
Although Canada’s investment practice has not undergone any major developments ever since, I decided to use a
more recently drafted model. The said BIT has been signed in 2013 and come into force in 2014. It will be referred
to as Canada Model BIT throughout the text.
11
As is well known, BITs adopted by EU Member States are not drafted in accordance with a common model. Each
country has its own model BIT. Despite this it is possible to find some common features among them. In general,
European BITs are widely recognised for being considerably ‘investor-friendly’. The Dutch model BIT, often
meaningfully labelled Dutch golden standard, represents a textbook illustration of such friendliness.
12
For more detail see Timothy G. Nelson, Going Dutch: the Many Virtues of the Netherlands Model BIT, 6 Dispute
Resolution International, 161-181 (2012); Nikos Lavranos, In Defence of Member States’ BITs Gold Standard: The
Regulation 1219/2012 Establishing a Transitional Regime for Existing Extra-EU BITs – A Member State’s
Perspective, 10 Transnational Dispute Management, 1-14 (2013).
13
See European Commission, ‘EU finalises proposal for investment protection and Court System for TTIP’, Press
Release, (12 November 2015), http://trade.ec.europa.eu/doclib/press/index.cfm?id=1396&title=EU-finalises-
proposal-for-investment-protection-and-Court-System-for-TTIP (accessed 15 January 2016).
14
See Hans Von Der Burchard, Canada’s fresh push for EU trade deal, http://www.politico.eu/article/canada-trade-
deal-ttip-ceta-malmstrom-trudeau/ (accessed 15 January 2016).

62
particular, it will be argued that the agreement in question possibly represents an unprecedented
development compared to the current EU Member States investment practice.

Finally, this article will not make any comparison between CETA and TTIP. It will only make
sporadic reference to the latter. The reason behind this choice is twofold. First and foremost, the
TTIP investment court system is a mere proposal of one contracting party to the agreement which
has yet to be accepted by the other contracting party. Such acceptance does not seems to be a
given at present. 15 Secondly, any serious examination of the dispute settlement mechanism
established by TTIP would deserve a separate study, which cannot be made in this article. 16

2. The procedural guarantees established by the CETA ISDS

Draft Chapter X CETA lays down the rules concerning investment protection. Section 6 deals
specifically with ISDS. The arbitration rules available under CETA are the usual four, namely the
ICSID Convention, the ICSID Additional Facility Rules, the UNCITRAL Arbitration Rules, and
any other arbitration rules as agreed by disputing parties. 17 However, CETA contains a number of
provisions that will complement those rules and that seemingly mark a significant development
from previous models. Some of these provisions are analysed in the following pages.

a) Time-limit to bring an arbitral claim

There are essentially two mechanisms in existing investment practice to narrow down the
jurisdiction ratione temporis of arbitral tribunals. The first one is the inclusion of provisions
establishing so-called ‘cooling off periods’ requiring claimants to wait before they can bring a
claim. The second one is so-called ‘statute of limitation’ precluding access to arbitration after the
lapse of a certain period of time. Both mechanisms have the effect of limiting investors’ rights to
bring an arbitral claim.

European BITs contain negligible time limitations. The investor can virtually submit a request for
arbitration at any time. The only limitation to such right is usually a six-month cooling off period
that the investor must abide by before submitting the claim to either a domestic or an
international court. Such period runs generally from the date on which the dispute was raised by
one of the parties to it. 18 Cooling off periods are required in almost 90% of investment treaties in
force globally. 19 Their main purpose is to favour an amicable settlement of the dispute. No
statutes of limitation are found in European BITs. On the contrary, the US Model BIT, the Canada
Model BIT and NAFTA all include statutes of limitation prohibiting access to international
arbitration if a claim has not been brought within three years. This period runs from the date on

15
See ISDS Blog, The U.S is Sceptical of the European Commission’s ISDS Proposal,
http://isdsblog.com/2015/11/13/the-u-s-is-sceptical-of-the-european-commissions-isds-proposal/ (accessed 15
January 2016).
16
See Luca Pantaleo, Lights and Shadows of the TTIP Investment Court System, CLEER Paper, forthcoming.
17
See Consolidated CETA Text, Art. X.22 CETA (26 Sept. 2014).
18
See, for example, Germany Model BIT, Art. 10(2) (2008).
19
See Organisation for Economic Co-operation and Development – Investment Division, Directorate for Financial
and Enterprise Affairs, Dispute Settlement Provisions in International Investment Agreements: a Large Sample
Overview, 14 ff (2012).

63
which the investor first acquired, or should have first acquired, knowledge of the alleged breach
and knowledge that it has incurred loss or damage. 20 There are only a handful of NAFTA cases in
which the application of the time-bar has been invoked. In all of those cases the arbitral tribunal
affirmed the general applicability of statutes of limitation, at least in principle. In Feldman v.
Mexico, an ICSID tribunal held that such a limitation ratione temporis operates concurrently with
all other preparatory steps laid down by NAFTA. 21 This means that the timeframe within which
an investor can actually bring a claim is even shorter than three years, taking into account the
cooling off period.

CETA borrows from the NAFTA experience and goes further. It establishes a quite rigorous
timetable that claimants have to respect in order eventually to be able to submit an arbitral claim.
First and foremost the investor has to submit a request for mandatory consultations. 22 There is no
cooling off period to abide by, which means that request for consultations can be filed at any time
after the dispute has arisen. Such request has however to be submitted within the following
deadlines:

a) 3 years after the date on which the claimant first acquired, or should have first acquired,
knowledge of the alleged breach and knowledge that it has incurred loss or damage;

b) two years after the claimant exhausts or ceases to pursue claims or proceedings before a
tribunal or court under the law of a Party and, in any event, no later than 10 years after the date
on which the claimant first acquired, or should have first acquired knowledge of the alleged
breach and knowledge that it has incurred loss or damage. 23

The investor cannot bring an arbitral claim before the termination of consultations, provided that
they begin to be held within 60 days of the request. The maximum duration of consultations is 90
days. Should the dispute concern an alleged breach of CETA by the EU or one of its Member
States, the claimant has to deliver a notice to the EU requesting a determination of the
respondent. After all this, the investor can finally submit a request for arbitration proper provided
that it allows:

a) at least 180 days to elapse from the submission of the request for consultations, and

b) where applicable, at least 90 days to elapse from the submission of the notice requesting a
determination of the respondent. 24

In conclusion, CETA imposes two different cooling off periods, and a double statute of limitation.
The first cooling off period is implicit in the mandatory character of consultations, which may
last up to five months. The second is a cooling off period proper lasting from six to nine months
depending on the respondent’s identity. The first three-year statute of limitation is based on the
date when the investor acquired knowledge of the breach and of the damage suffered. The second
20
See NAFTA Art. 1116(2), US Model BIT Art. 26(1), and Canada Model BIT Art. 22(2). These three provisions
employ very similar language.
21
See Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Decision on
Jurisdiction, par. 46 (16 December 2002).
22
For the relations between non-confrontational and confrontational dispute settlement procedures see below.
23
See CETA, Art. X.18.
24
See CETA, Art. X.21.

64
statute applies when the investor has resorted to domestic remedies. CETA will therefore belong
to a minority of investment agreements laying down statutes of limitation. 25 All things
considered, CETA seems to create a veritable barrage of deadlines. Such a complex system of
ratione temporis limitations to the investor’s right to bring proceedings is almost unique in
current investment treaty practice.

b) Preliminary non-confrontational dispute settlement procedures

A vast majority of existing investment agreements require or suggest that the parties attempt to
settle the dispute through non-confrontational procedures. 26 Such procedures are variably referred
to as amicable settlement, mediation or consultations. European BITs seldom make these
procedures a mandatory step to be taken prior to arbitration. They often do no more than suggest
that the parties involved should settle disputes amicably to the extent possible. 27 The US Model
BIT takes much the same approach, and so does NAFTA. 28 Canada’s recent practice, on the other
hand, reveals a shift to a model in which prior mandatory non-confrontational procedures are the
rule rather than the exception. 29 CETA seems to build on the Canadian experience by providing
that prior non-confrontational settlement shall be attempted before the investor can submit an
arbitral claim. As seen above, such settlement is referred to as consultations. 30 CETA, however,
takes an even stricter approach than do recent Canadian BITs, by imposing a rigorous
correspondence between the request for consultations and the arbitral claim. Article X.21
stipulates that the investor cannot identify “measures in its claim to arbitration that were not
identified in its request for consultations”. Although the consequences of violating such rule are
not made express, it seems reasonable to affirm that a claim containing belated complaints should
be considered inadmissible as regards the parts falling outside the boundaries traced by the
request for consultations. In my view, it is doubtful whether such solution will prove beneficial to
the amicable settlement of disputes. It is generally recognised that in investment practice parties
often discuss things at the consultation stage on a ‘without prejudice’ basis. 31 Namely, upon
condition that the communication and its contents made in the attempt to solve the dispute
amicably cannot be used against the party making the statement in court proceedings. This
normally helps disputing parties to negotiate more freely, and should also favour the achievement
of creative solutions that are difficult to replicate in a more formalised context. The utility of a
mechanism creating a formal and procedural link between amicable and non-amicable
settlements is therefore doubtful. However, what is indeed beyond doubt is that the solution
proffered by CETA favours the respondent State over the investor; if only because the investor is
under an obligation to lay all its cards on the table at the very beginning of the dispute. To my
knowledge, this inextricable link between consultations and arbitration is, again, unique to CETA.

c) Relation to other fora

25
According to an OECD study, only 7% of existing agreements include this type of time limitation. See supra, note
19.
26
Id., Approximately 90% of existing treaties.
27
See, for example, German Model BIT Art. 10(1), UK Model BIT Art. 8(3), Netherlands-Bahrain BIT Art. 9(1).
28
See US Model BIT Art. 23 and NAFTA Art. 1118 respectively.
29
See, for example, Canada-Benin BIT Art. 24(1), Canada-China BIT Art. 21(1), Canada-Kuwait BIT Art. 21(1).
30
See CETA, Art. X.18.
31
See Meg N. Kinnear, Andrea K. Bjorklund and John F.G. Hannaford, Investment Disputes under NAFTA: An
Annotated Guide to NAFTA, Chapter 11, 1181-1 (Kluwer Law International 2011).

65
European BITs contain virtually no provisions regulating the relation between investment
arbitration and other dispute settlements. The only exception is the indirect waiver of the
exhaustion of local remedies rule contained in the provision establishing a cooling off period as
the sole condition to arbitration. The US Model BIT, the Canada Model BIT and NAFTA take a
different approach. In similar terms, they all require that the investor waives its rights to initiate
or continue any proceeding before a local court or any other dispute settlement forum. 32 Such
waiver normally takes the form of a written statement accompanying the notice of submission of
a claim to arbitration. A few NAFTA cases in which the issue of the investor’s waiver has been
raised show that the effect of the rule remains controversial. Arbitral tribunals have at times been
inclined to adopt lax and creative interpretations of the waiver rule. 33 All in all, however, NAFTA
practice reveals that the rule is often considered, and rightly so, a condition to establish the
jurisdiction of the arbitral tribunal. In Waste Management v. Mexico, an ICSID Tribunal not only
checked whether the waiver was free of formal defects in that it was presented in writing,
delivered to the respondent, and included in the submission. It also scrutinised the substantive
adequacy of such waiver to reflect the claimant’s effective intention to give up its rights in
accordance with Art. 1121 NAFTA. The Tribunal dismissed the claim after it came to a negative
conclusion. 34

Once again, CETA seems to borrow from the practice developed on the other side of the Atlantic,
and to go further. Where the investor has already initiated any other form of proceeding in respect
of the same measures, it has to provide a declaration that those proceedings are either terminated
or withdrawn. The declaration shall contain proof of such termination or withdrawal, such as a
domestic judgment not subject to further appeal. If the investor has not initiated other
proceedings, it has to provide a waiver similar to that laid down by NAFTA. 35 Although the
possibility of arbitral tribunals adopting extravagant interpretations cannot be excluded a priori, it
seems that CETA’s waiver is formulated in such way that the risk of multiple, simultaneous
proceedings should be eliminated or at least drastically reduced.

d) Transparency of arbitration

Investment arbitration has often been regarded as a form of secret and untransparent justice,
especially by civil society. Such perception has increased in recent times and ignited the debate
surrounding the TTIP. 36 While it is questionable whether confidentiality is a legal obligation

32
See, for example, US Model BIT Art. 26(2), Canada-Benin BIT Art. 24(2), NAFTA Art. 1121.
33
See, in particular, Ethyl Corporation v. The Government of Canada, UNCITRAL Award, Award on Jurisdiction,
par. 91 (24 June 1998), in which the Tribunal stated that Art. 1121 NAFTA lists a number of ‘Conditions Precedent’
without specifying to what those conditions are actually precedent. It is worth noting that Art. 1121 is titled
‘Conditions Precedent to Submission of a Claim to Arbitration’. It is really hard to see what prevented the Tribunal
from reading and applying the second half of the provision in question, which seems to be crystal clear as to what
those conditions have to precede.
34
See Waste Management, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/98/2, Decision on Jurisdiction,
par. 18 ff. (2 June 2000).
35
See CETA, Art. X.21.
36
See Stop TTIP, Stop TTIP: Malmström’s ISDS proposal misses the point, https://stop-ttip.org/stop-ttip-
malmstroms-isds-proposal-misses-the-point/ (accessed 6 August 2015) where investment arbitration is referred to as
‘private parallel justice’.

66
under arbitration rules, 37 it is undeniable that investment disputes are often kept confidential by
the parties. This situation has raised awareness of the downsides of confidentiality, and given rise
to calls for greater transparency. 38

European States have traditionally not favoured transparency in investment arbitration. During
the debate concerning the modification of UNCITRAL rules on transparency several EU Member
States expressed sceptical views. For example, the German delegation issued the following
declaration:

‘Arbitral proceedings are primarily determined by agreement between the parties. This should
also be the case for provisions regarding transparency and publicity. Arbitral proceedings in the
field of investor-State arbitration also mainly deal with investors’ interests that are worthy of
protection. In light of this, a provision on transparency and publicity should be made subject to
the consent of the investor. The investor could, for example, be given a right to choose whether to
apply or waive special provisions on transparency and publicity in an arbitral proceeding.’ 39

It should therefore come as no surprise that European BITs are not very advanced when it comes
to provisions laying down transparency obligations. In fact they virtually contain no such
provisions. The picture is different on the other side of the Atlantic. NAFTA did not originally
contain explicit rules on transparency. However, through a decision of the Free Trade
Commission (FTC) the three Member States committed themselves to some of the highest
transparency standards currently existing in investment arbitration. In brief, the parties have
engaged to ensure that the public is given notice of the existence of the arbitration; that
documents submitted to the tribunal or issued by it are publicly available; and that hearings are
fully open to the public. 40 Similar standards are incorporated in the US and Canada Model BITs.

CETA incorporates the UNCITRAL Rules on Transparency in Treaty-based Investor-State

Arbitration (hereinafter: the UNCITRAL Rules on Transparency) as the starting point, 41 with a
few additions towards increased transparency. In particular, Article X.33 CETA: (a) expands the
categories of documents subject to publication under Article 3(1) of the UNCITRAL Rules on
Transparency; (b) includes the publication of exhibits excluded pursuant to Article 3(2)
UNCITRAL Rules on Transparency; (c) imposes such publication prior to the constitution of the
arbitral tribunal (the UNCITRAL Rules on Transparency refer to the commencement of the
proceedings); and (d), contrary to Article 6 UNCITRAL Rules on Transparency, requires that

37
In general arbitration rules favour but do not impose confidentiality. For example, ICSID Convention Art. 48(5)
prevents the Secretary General from publishing awards without the parties’ consent. There is, however, no similar
provision applicable to the parties. The latter are therefore free to disclose documents to their liking. Roughly the
same reasoning applied to UNCITRAL before the recent amendments that will be discussed below.
38
The many reasons why lack of transparency in investment arbitration is a point of concern cannot be
examined in-depth in this study. For a thorough analysis see N. Jansen Calamita, Dispute Settlement Transparency
in Europe’s Evolving Investment Treaty Policy, 15 Journal of World Investment and Trade, 645-678 (2014).
39
United Nations Commission on International Trade Law, Working Group II (Arbitration and Conciliation),
Fifty-third session, Vienna, A/CN.9/WG.II/WP.159/Add.2, 7, emphasis added (4-8 October 2010).
40
See NAFTA Free Trade Commission Joint Statement, A Decade of Achievement, (16 July 2004).
41
Adopted by UN General Assembly Resolution 68/109 of 16 December 2013 and come into force on 1 April 2014.

67
hearings are open to the public with virtually no limitations. 42

Compared to the traditional attitude of some EU Member States on transparency, the adoption of
a ‘UNCITRAL-Plus’ model in CETA represents an unprecedented development. 43 While it is
undeniable that investment arbitration may at times give rise to issues of industrial, commercial
or other sorts of confidentiality, the positions taken by the Member States - as exemplified by the
German statement - do not seem to be fully justified. The choice between transparency and
secrecy should not be left entirely in the hands of the parties to the dispute, let alone in the hands
of only one party. Granting investors veto power on transparency seems unnecessary. Moreover,
it is safe to affirm that the need to protect certain information only justifies the protection of that
information but not of other parts and documents of the proceedings. Hence, the solution adopted
by CETA deserves to be welcomed. 44

Another question related to transparency is the participation of third parties to investment

disputes, so-called amici curiae. In brief, the role of amicus curiae has traditionally been carried
out by NGOs. However, recent trends show that actors other than NGOs – such as labour unions,
representatives of indigenous peoples and the EU Commission - have requested and obtained
permission to intervene as third parties to disputes. 45 In virtually all cases the amicus curiae has
intervened in favour of the respondent State. Amici curiae usually advocate in favour of issues
concerning public, collective interests as opposed to the investor’s private interests. 46 For this
reason, the possibility to allow third parties interventions in an investment dispute can be viewed
as a tool to allow greater consideration of public concerns.

European BITs do not contain provisions concerning participation of non-disputing parties. In

disputes based on European BITs the issue has therefore been governed by the arbitration rules
chosen by the disputing parties. When it comes to participation of third parties, the ICSID
Arbitration Rules have been substantially improved by the 2006 amendments. Rule 32 allows
third parties to attend or observe all or part of the hearings. The language employed is rather odd,
given that ‘to observe’ does not seem to involve much active participation. However, reference to
the possibility ‘to attend’ a hearing leaves room for arguing that non-disputing parties may be
authorised to make oral submissions. To my knowledge, however, no ICSID tribunal has ever
granted such authorisation. Moreover, Rule 32 contains a caveat granting disputing parties de
facto veto powers. In fact, their objection has the effect of blocking altogether the amicus curiae’s
request to take part in the hearing. Rule 37 allows the tribunal to authorise written submissions of
non-disputing parties provided that such submissions would assist the tribunal, and that the party
in question has a significant interest in the proceedings. The parties to the dispute must be

42
The only exception to public hearings occurs when the tribunal deems that appropriate arrangements are necessary
to protect confidential or protected information. However, to avoid misuse, the provision in question makes it clear
that only that part of the hearing requiring special protection shall be held behind closed door.
43
A prominent scholar has referred to such development as a ‘radical step’, and a ‘bold decision’ made by the
Commission. See N. Jansen Calamita, ‘Dispute Settlement Transparency in Europe’, 672.
44
Leaving aside the TTIP investment court system, it is worth noting that the EU-Singapore FTA, unfortunately,
does not go as far as CETA as regards transparency issues. See Annex 9-C to Chapter 9 of such FTA.
45
See Lucas Bastin, Amici Curiae in Investor-State Arbitration: Eight Recent Trends, 30 Arbitration International,
125, 127-129 (2014).
46
The only exception is essentially the EU Commission whose intervention has been aimed at presenting
interpretations of EU law without taking a position in favour of one of the parties to the dispute. See Bastin, ‘Amici
Curiae’, 134.

68
consulted but have no veto. Written submissions by amici curiae have been authorised in a
number of ICSID cases. 47 The UNCITRAL Rules on Transparency are somewhat more limited
than ICSID in that they provide only for the possibility to file written submissions.48 Within the
NAFTA context the issue is governed by a statement made by the FTC in 2003, which has no
binding effect but is largely followed by arbitral tribunals. Only written submissions by third
parties are authorised under NAFTA. 49 The same logic is followed by both the US and the
Canada Model BITs. 50

CETA does not seem to bring about much improvement in terms of participation of third parties
to the proceedings. It actually adds some degree of ambiguity. There is no provision in CETA
dealing explicitly with the question. On the one hand, it may be argued that the incorporation of
the UNCITRAL Rules on Transparency implies that those rules apply also in respect of third
parties participation. However, a closer look at Article X.33 CETA leads to a more nuanced
interpretation. The provision in question stipulates that the UNCITRAL Rules on Transparency
apply ‘to the disclosure of information to the public concerning disputes’. Such language is not
immune from ambiguity. In fact, there may be room for arguing that CETA incorporates the
UNCITRAL Rules on Transparency only when it comes to confidentiality issues, and not to amici
curiae interventions. If this interpretation is correct, issues concerning the participation of third
parties to CETA-based disputes will be governed by the arbitration rules chosen by the parties.

e) Content of the final award

Two issues arise when it comes to the content of the final award. On the one hand, the award is
supposed to allocate the costs of the arbitration between the parties. On the other, in particular
when the claim turns out to be successful, the award needs to identify the remedies necessary to
compensate the claimant for the losses incurred.

The allocation of the costs of the arbitration is not tackled uniformly by existing arbitration rules.
Under the UNCITRAL Arbitration Rules such costs are in principle to be borne by the
unsuccessful party (Art. 40). Both the ICSID Convention and Arbitration Rules, as well as the
ICC Rules (in particular, Art. 31), leave the decision on the matter to the tribunal’s discretion. In
the context of ICSID there are, however, two exceptions. First, in cases of conciliation the costs
of the procedure have to be equally divided between the parties. Each party bears any additional
costs it may have incurred in connection with the dispute (typically legal fees and related
expenses). Secondly, ICSID provides the possibility for the parties to agree on a different
allocation of costs if consultations fail. Against this background, arbitral tribunals in non-
UNCITRAL cases have developed a diversified case law. Although there may be a trend towards
the apportionment of costs in favour of the victorious party, 51 cases in which the loser bears the
entire burden of the costs are none the less rare. In the majority of cases, arbitral tribunals tend to

47
See, ex plurimis, Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v. Argentine
Republic, ICSID Case No. ARB/03/19 (09 April 2015); Piero Foresti, Laura de Carli & Others v. The Republic of
South Africa ICSID Case No. ARB(AF)/07/01 (4 August 2010).
48
See Art. 4.
49
See Bastin, ‘Amici Curiae’, 131-133.
50
See US Model BIT Art. 28(3), and Canada-Benin BIT Art. 34.
51
See Christoph H. Schreuer, The ICSID Convention. A Commentary, 1229-19 (2nd ed., Cambridge University
Press, 2009).

69
be more inclined to award only part of the costs to the victorious party. Equal sharing is still quite
frequent, albeit declining. 52 However, arbitral tribunals have demonstrated a willing to award
costs to the prevailing party in cases of misconduct on the part of the loser, such as dilatoriness or
fraud. 53

As for the heads of damage that can be awarded and the remedies available to arbitrators, one has
to refer to the rules of general international law applicable to state responsibility. Reparation for
an internationally wrongful act takes the form of restitution, compensation or satisfaction,
separately or in conjunction. 54 Given the structure and the nature of investment disputes,
however, restitution and satisfaction play a very limited role. Monetary compensation for losses
and interest are by far the most frequent remedies awarded by arbitral tribunals. 55 Damages are
generally only warded to compensate investors for material damages incurred. Arbitral tribunals
have occasionally awarded monetary compensation for non-material damages, 56 such as moral
and punitive damages. As for the latter, however, it is doubtful whether such case law is
compatible with international law. 57

European BITs are silent as regards the content of final awards. In most cases, the only mention
of the final award is to state its binding force on the parties. 58 The question of costs is therefore
governed by the arbitration rules chosen by the disputing parties in each case, and the remedies
are those identified above in accordance with general international law. The same does not hold
true in respect of the practice prevailing on the other side of the Atlantic when it comes to the
determination of the remedies. Article 1135 NAFTA specifies that a tribunal may award,
separately or in combination,

(a) monetary damages and any applicable interest;

(b) restitution of property, in which case the award shall provide that the disputing Party may pay
monetary damages and any applicable interest in lieu of restitution.

Article 1135 NAFTA also stipulates that punitive damages cannot be awarded. A similar solution
is adopted in both the US and the Canada Model BIT. 59 As regards the costs of arbitration, all
these instruments state that a tribunal can award costs in accordance with the applicable
arbitration rules. From this perspective North American investment agreements do not much
differ from their European counterparts.

52
See Christoph H. Schreuer, ‘The ICSID Convention’, 1232-33; Lucy Reed, Jan Paulsson and Nigel Blackaby, A
Guide to ICSID Arbitration, 155 (Kluwer Law International 2010).
53
See Reed, Paulsson and Blackaby, ‘A Guide’, 155.
54
See Art. 34 of Art.s on Responsibility of States for Internationally Wrongful Acts adopted by the ILC in 2001.
55
See Christoph H. Schreuer and Rudolf Dolzer, Principles of International Investment Law, 294 (2nd ed., Oxford
University Press 2012),
56
The leading cases are Benvenuti et Bonfant v. People’s Republic of the Congo, 21 ILM 740-766 (1982); Desert
Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17 (6 Febr. 2008).
57
On moral damages see Stephen Jagusch and Thomas Sebastien, Moral Damages in Investment Arbitration:
Punitive Damages in Compensatory Clothing?, 29 Arbitration International, 45-62 (2013). On punitive damages see
Jessica J. Fei, Damien McDonald and Eunice Bai, ‘Awards of Punitive Damages’, in Devin Bray and Heather L.
Bray (eds.), Post-Hearing Issues in International Arbitration, 49-75 (Juris 2013).
58
See, for example, Netherlands-Bahrain BIT Art. 9(4).
59
See US Model BIT Art. 34 and Canada-Benin BIT Art. 37 respectively.

70
Article X.36 CETA seems to make use of the best practice available. First and foremost, it adopts
the ‘loser pays’ maxim as a general principle for the allocation of costs, thus reducing the risk of
vexatious litigation. This applies not only to the costs of arbitration but also to ‘other reasonable
costs’ parties may have incurred. The provision does contain a carve-out stating that a tribunal
may allocate costs otherwise ‘if it determines that apportionment is appropriate in the
circumstances of the claim’. It could be argued that such an exception could serve to nullify the
general scope of the ‘loser pays’ principle if taken to an extreme. However, Article X.36 seems to
be clear in stating what the general rule is, and what the exception is. There is little room for
misreading the provision. The ‘loser pays’ principle applies also to cases of partially successful
claims. In such cases the apportionment of costs is proportionate to the extent of the successful
elements of the claims. Article X.36 follows the NAFTA example when it comes to the
determination of the remedies available to arbitrators. Similarly to Article 1110 NAFTA, it
specifies the calculation method in case of compensation for expropriation. In fact, Article X.36
affirms that the damages awarded should represent ‘the fair market value of the property at the
time immediately before the expropriation, or impending expropriation became known,
whichever is earlier’. This is method is generally regarded as corresponding to the best practice
available when it comes to the determination of compensation due as a result of an illegal
taking. 60 Finally, the award of punitive damages is prohibited under Article X.36(4).

f) Appellate mechanism and appointment of arbitrators

The establishment of an appellate mechanism is a vexed question in international investment

law. 61 Arbitral awards are generally not subject to appeal. In the ICSID system they have the
same legal force as a final judgment of a court in the State where enforcement is sought. 62 Non-
ICSID awards are also not subject to appeal and generally enforced in accordance with the rules
laid down by the 1958 New York Convention. Enforcement can be refused only in limited
cases. 63 Hence, a party that has lost an investment arbitration is left with few available remedies.
If one considers that in arbitral proceedings there is often a significant amount of money and
other sensitive interests at stake, the lack of a second chance can be a massive blow for the losing
party. 64 In addition, arbitral tribunals have built themselves a reputation for inconsistency. 65 The –

60
On this issue see more thoroughly Christoph H. Schreuer and Rudolf Dolzer, ‘Principles’, 296 ff.
61
See Asif H. Qureshi, ‘An Appellate System in International Investment Arbitration?’, in Peter Muchlinsky,
Federico Ortino and Christoph Schreuer (eds.), The Oxford Handbook of International (Oxford University Press
2008), 1154-1170.
62
See ICSID Art. 54.
63
See Art. V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
64
See VV. Veeder, ‘The Necessary Safeguards of an Appellate System’, in Federico Ortino, Audley Sheppard and
Hugo Warner (eds.), Appeals and Challenges to Investment Treaty Awards: Is It Time for an International Appellate
System?, 9 (The British Institute of International and Comparative Law 2006).
65
One may immediately think of a few emblematic examples, such as the diverging interpretation of the standard of
fair and equitable treatment given by a trio of NAFTA awards rendered within a relatively short time frame. See
S.D. Myers, Inc. v. Government of Canada, UNCITRAL Award (13 November 2000); Metalclad Corporation v.
The United Mexican States, ICSID Case no. ARB(AF)/97/1 (30 August 2000); Pope & Talbot Inc. v. The
Government of Canada, UNCITRAL Award on the Merits of Phase II (10 April 2001). Even more meaningful is the
case of two awards involving Czech Republic on the same contested measures. The case was raised by the
shareholder of a company and by the company itself. Since they were of a different nationality the case was brought
to two different tribunals and on the basis of two different BITs. The Tribunals rendered their awards within 10 days
of each other but reached very different conclusions on many issues, despite the fact they were confronted with very
similar if not identical questions. See Ronald S. Lauder v. The Czech Republic, UNCITRAL Award (3 September

71
real or imaginary – lack of a jurisprudence constante is often regarded as a reason to question the
legitimacy of the system, despite the fact that the lack of binding precedents is a well-established
principle of international adjudication. 66 After all, predictability and consistency are important
aspects of the rule of law. For all these and other reasons, many would argue that the
establishment of an appellate mechanism would increase the overall legitimacy of the investment
regime. 67 In my opinion, some of the concerns often adduced to justify the creation of an
appellate mechanism are misplaced. Elaborating on this issue would, however, require more
space than I am given here. I will simply assume, for the sake of argument, that an appellate
mechanism in investment law is desirable and would represent an improvement to the system.

The US Trade Act of 2002 enabled the creation of an appellate mechanisms in future investment
agreements, with a view 'to provide coherence to the interpretations of investment provisions'. 68
No such appellate body has been created so far. Since then, however, the US Model BIT includes
an open-ended clause that enables the creation of an appellate mechanism in the future. 69 No such
clause is contained in Canadian BITs nor in NAFTA. European BITs do not envisage the creation
of an appellate system either. CETA seems to build on the American experience. Article X.42
provides the establishment of a Committee on Services and Investment. Among other things, the
Committee is entrusted with the task of exploring the possibility of creating an appellate
mechanism or, alternatively, to make awards rendered under CETA subject to a (hypothetical)
appellate mechanism created pursuant to other investment instruments. Article X.42 stipulates
that the Committee shall consider the nature and composition of the mechanism; the relevant
standard of review; transparency rules applicable to appellate proceedings; and the relationship of
such appellate body with both other arbitral tribunals, and domestic and international law. True,
Article X.42 provides only for a vague commitment, the achievement of which is entirely
dependent on the parties' good will. However, it still seems to go further than any other similar
commitment made so far. With the notable exception of the proposed TTIP investment court
system, which cannot be analysed in this article. 70

Partly related to this question is that of the appointment of arbitrators. The way arbitrators are
chosen has given rise to a growing demand for change. In brief, two major problems of the
current system have been identified. First of all, the appointment of some individuals has raised
doubts concerning their ability to serve as a judge in an international dispute. Some observe that
the presence on the bench of, for example, members of major law firms is per se incompatible

2001) and CME Czech Republic BV v. The Czech Republic, UNCITRAL Partial Award (11 September 2001). See
also Lord Mustill’s foreword in Thomas Roe and Matthew Happold, Settlement of Investment Dispute under the
Energy Charter Treaty (Cambridge University Press 2011), at xiii, where it is noted that ‘the entire area of study
seems to be heading for a thrombosis.’
66
See the seminal work of Mohamed L. Shahabuddeen, Predecent in the World Court (Cambridge University Press
1996).
67
See Debra P. Steger, ‘Enhancing the Legitimacy of International Investment Law by Establishing an Appellate
Mechanism’, in Armand De Mestral and Céline Lévesque (eds.), Improving International Investment Agreements,
247-264 (Routledge 2013).
68
See US Code 19, §§ 3803-3805 approved on 6 August 2002, HR 3009-63.
69
See US Model BIT Art. 28(10).
70
As is well known, the TTIP brings this question further by establishing an Appeal Tribunal. See Luca Pantaleo,
‘Lights and Shadows’.

72
with the office of adjudicator. 71 In addition, investment arbitration is a small world. Arbitrators
often gain a reputation for the views they are deemed to be supportive of. Parties to investment
disputes should in principle choose arbitrators based on their experience and expertise. To a
certain extent parties do look for quality standards. However, there is also a tendency to select
individuals who may be sympathetic to one party’s particular case or situation. 72 For these and
other reasons the appointment of arbitrators as it currently stands has met with strong opposition.

It is important to note that the procedures for the appointment of arbitrators differ under each set
of arbitration rules, as do the rules concerning their challenge. In the ICSID Convention the
requirements for appointment as an arbitrator are laid down in Article 14(1) but they are rather
vague. A general ‘competence in the fields of law, commerce, industry or finance’ is required, as
well as high morality and impartiality. Both the UNCITRAL and the SCC Arbitration Rules are
silent on the qualities of arbitrators but their attributes can partly be derived a contrario from the
rules concerning their challenge. The UNCITRAL Rules states that an arbitrator can be
challenged if there are justifiable doubts as to the person’s impartiality. The SCC Rules are
somewhat more rigorous. Article 15(1) stipulates that an arbitrator can be challenged not only in
case of conflict of interests but also ‘if he/she does not possess qualifications agreed by the
parties’. As regards the challenge of arbitrators, the ICSID system stands as an exception in the
current regime. While virtually all other arbitration rules refer to ‘justifiable doubts’, ICSID is
more rigid in that it demands a ‘manifest lack’ of the qualities required to be appointed
arbitrator. 73 Due to the combined reading of Articles 14 and 57 of the ICSID Convention,
challenging an arbitrator under this regime has proved difficult. In raw numbers, challenges to
arbitrators have been successful in approximately 30-40% per cent of cases involving non-ICSID
tribunals. 74 Up to November 2013, only 1 out of 36 ICSID challenges had been upheld. 75 The
reason of such remarkable disproportion is that under the ICSID Convention the threshold for
challenging an arbitrator is admittedly higher than under other instruments. Namely, ICSID
requires a manifest lack of requirements as opposed to reasonable doubt. Recently, on at least
three occasions ICSID arbitrators have been successfully challenged based on a reasonable doubt
standard. 76 At present, however, it is unclear whether this strand of decisions represents a true
shift of case law towards a general acceptance of the reasonable doubt standard, or whether they
will prove to be isolated exceptions. 77

71
Mattias Kumm, An Empire of Capital? Transatlantic Investment Protection as the Institutionalization of
Unjustified Privilege, 4(3) European Society of International Law Reflections, 7 (2015).
72
See Judith Gill, ‘Inconsistent Decisions: an Issue to be Addressed or a Fact of Life?’ in Federico Ortino, Audley
Sheppard and Hugo Warner (eds.), Appeals and Challenges to Investment Treaty Awards, 61 (British Institute of
International and Comparative Law 2006).
73
See ICSID Art. 57.
74
See Karel Daele, Investment Treaty Arbitration: Similar Challenge, Different Outcome, in Global Arbitration
Review, http://globalarbitrationreview.com/journal/Art./30410/investment-treaty-arbitration-similar-challenge-
different-outcome/ (accessed 7 August 2015).
75
This calculation does not take into account cases where the challenged arbitrator has stepped down spontaneously.
76
Blue Bank International and Trust (Barbados) Limited v. Bolivarian Republic of Venezuela ICSID Case No.
ARB/12/20 (12 November 2013); Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5 (13
December 2013; Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of Kazakhstan,
ICSID Case No. ARB/13/13 (20 March 2014).
77
Rather sceptical seem to be Baiju S. Vasani and Shaun A. Palmer, Challenge and Disqualification of Arbitrators
at ICSID: A New Dawn?, 30 ICSID Review, 194-216 (2015).

73
European BITs contain no provisions concerning the appointment and challenge of arbitrators.
The question is therefore governed by the arbitration rules chosen by the disputing parties.
NAFTA, the US Model BIT and the Canada Model BIT contain detailed rules on appointment of
arbitrators and, as a consequence, on the grounds for their challenge. First of all, these
instruments all contain a very similar clause concerning the nationality of arbitrators. According
to such clause the disputing parties agree to waive the prohibition laid down in Article 39
ICSID. 78 In addition, both the US Model BIT and the Canada Model BIT explicitly require that
arbitrators shall have expertise or experience in financial services law or practice when the
dispute involves measures concerning financial services. 79 The Canadian template goes further
down this road in that it states that arbitrators shall have expertise or experience in public
international law, international trade or international investment rules in case of State-to-State
dispute. 80

CETA largely borrows from the North American experience with some important adjustments.
First of all, Article X.26 incorporates the same nationality waiver as seen above. Secondly, and
most importantly, Article X.25(5) sets a high quality standard for arbitrators. It states that
arbitrators ‘shall have expertise or experience in public international law, in particular
international investment law’, and, as an additional (but optional) requirement, that they have
‘expertise or experience in international trade law and the resolution of disputes arising under
international investment or international trade agreements’. This is particularly useful in view of
the fact that CETA Chapter X is part and parcel of a comprehensive free trade agreement, with
which it may share some essential legal concepts and principles. The standard in question might
somehow be deprived of practical relevance considering the absence of any ex ante review of its
existence. If, say, one party to the dispute appointed an arbitrator who lacks the necessary skills
required by Article X.25(5), there would be no possibility of preventing such party from doing so.
While this might be true, however, the arbitrator can always be challenged ex post for want of the
necessary expertise. In addition, the same provision also stipulates that arbitrators shall be
independent and ‘shall not take instructions from any organisation, government or disputing party
with regard to matters related to the dispute’.

CETA does not clarify what standard has to be applied to challenges, whether reasonable or
manifest doubt. This means that the solution would depend on the arbitration rules chosen by the
disputing parties. However, it is worth noting that the aforementioned Committee on Services and
Investment has the power to adopt supplemental rules concerning the requirements of arbitrators.
Such power could be used not only to require higher qualities but also to set a more clearly
defined standard of challenge. 81

3. Conclusions: will CETA take the best from past experience?

In the previous pages I have tried to provide a concise assessment of some procedural aspects of

78
See NAFTA Art. 1125, US Model BIT Art. 27(4) and Canada-Benin BIT Art. 29.
79
See US Model BIT Art. 20(3) and Canada-Benin BIT Art. 25(2).
80
See Canada-Benin BIT Art. 43.
81
Needless to say, the proposed TTIP investment court system brings about groundbreaking innovations also in
respect of this issue. See Luca Pantaleo, ‘Lights and Shadows’.

74
CETA’s ISDS. As anticipated in the introduction, CETA appears to be more balanced and
advanced than many existing investment instruments. It addresses some crucial points of
investment arbitration that have recently given rise to concerns. In this sense, it is undeniable that
CETA provides for increased transparency, a more clear-cut relation between ISDS and other
domestic or international dispute settlement, higher standards for the appointment of arbitrators,
and so forth. Clearly this is not to say that CETA will eliminate all the problems that have arisen
in the investment arbitration context in the last few years. Much has been done but there is still
much to do. More can be done, for example, in respect of challenges to arbitrators, to secure
broader third party participation to proceedings, and to improve the system when it comes to the
appointment of arbitrators. Some unresolved issues may be addressed by the Committee on
Services and Investment at a later stage. For example, the Committee could define more rigorous
impartiality requirements for arbitrators. Such requirements should make sure that individuals
actively involved in the business community do not sit in the bench.

To be sure, CETA’s ISDS is not a revolutionary step as it would be the TTIP investment court
system proposed by the Commission. For good and for bad, the latter essentially does away with
investment arbitration as we know it. CETA does not. The ISDS therein included is no more than
a (significantly) reformed investment arbitration mechanism, which leaves some questions still
open to debate. Not least those connected with the establishment of an appellate body, such as
consistency and predictability.

The scope of this chapter is narrow indeed. Only procedural aspects have been dealt with. I am
aware of the fact that in order to have an overall, and more accurate, picture of CETA it might
perhaps be thought necessary to look into substantive provisions concerning investment
protection. Considering the limited space that I have been given here I will refer the reader to
existing literature. 82 However, in my view CETA represents a significant step towards what has
been defined by a prominent scholar the ‘incremental adaptation of international investment law
to the demands of a more democratic and accountable international public law system of private-
public adjudication’. 83 Hence, the criticism which CETA has met with is partly misplaced or, in
some cases, simply specious. Especially on the part of some Member States, it may very well
disguise the attempt to protect some national interests and prerogatives. It would not be a first in
the EU’s history. 84

In a nutshell, the answer to the question in the title to this chapter seems to be ‘yes’. CETA takes
the best of existing practice and builds on that experience. It remains to be seen, however,

82
See, for example, Filippo Fontanelli and Giuseppe Bianco, Converging Towards NAFTA: an Analysis of FTA
Investment Chapters in the European Union and the United States, 50 Stanford Journal of International Law, 211
(2014). For a view arguing that reforms of the current regime should focus on substantive rather than on procedural
issues see the thoughtful examination of Stephan Schill, ‘The Sixth Path: Reforming Investment Law from Within’
in Jean E. Kalicki and Anna Joubin-Bret (eds.), Reshaping the Investor-State Dispute Settlement System, 621-652
(Brill 2015).
83
See Stephan Schill, The Mauritius Convention on Transparency: A Model for Investment Law Reform?, in EJIL:
Talk! http://www.ejiltalk.org/the-mauritius-convention-on-transparency-a-model-for-investment-law-reform/
(accessed 12 August 2015).
84
One may think, for example, at France’s opposition to an EU-MERCOSUR trade deal owing to concerns over a
claimed negative impact on French agriculture. See Euractiv, Farmers Oppose Relaunch of EU-MERCOSUR Trade
Talks, http://www.euractiv.com/cap/Farmers-oppose-relaunch-of-EU-Mercosur-trade-talks-news-494278 (accessed
12 August 2015).

75
whether or not that is enough to overcome the forces mobilising against it.

76
The allocation of international responsibility in the context of investor-state
dispute settlement mechanisms established by EU international agreements
Paolo Palchetti 1

1. Introduction

On 23 July 2014, the European Parliament and the Council adopted Regulation (EU) No
912/2014 ‘establishing a framework for managing financial responsibility linked to investor-to-
state dispute settlement tribunals established by international agreements to which the European
Union is party’. 2 The purpose of the Regulation is twofold. First, it addresses the question of
who must bear the financial responsibility arising from an investor-state dispute settlement
pursuant to an agreement to which the EU is party, or the EU and its member states are parties.
Secondly, the Regulation lays down the framework for the management of investor-state
disputes under these agreements. In particular, it establishes whether the EU or a member state
must act as the respondent in a claim. Incidentally, it may be noted that the criteria for
determining who bears financial responsibility and who acts as the respondent are, to a large
extent, similar. In principle, the EU must bear financial responsibility, and act as the respondent,
when the treatment of the foreign investor was ‘afforded by the institutions, bodies, offices or
agencies of the Union’ or when such treatment was afforded by a member state but ‘was required
by Union law’. 3 By contrast, member states have to bear responsibility for their conduct, unless
such conduct was required by Union law.

Regulation No 912/2014 does not aim at establishing who, between the EU and its member
states, must bear international responsibility for the treatment afforded to a foreign investor.
Indeed, it could hardly do so: the allocation of international responsibility can only be
determined by international rules, be it customary or treaty rules, and it cannot be unilaterally
imposed to third subjects through the adoption of EU regulations or other EU acts. As its
preamble makes clear, the Regulation only addresses the allocation of responsibility ‘as a matter
of Union law’, and therefore it has effect only in the relationship between the EU and its member
states. 4 However, the preamble also contains a reference to the question of the allocation of
international responsibility. It states that ‘[i]nternational responsibility for treatment subject to
dispute settlement follows the division of competences between the Union and the Member
States’, adding that ‘[a]s a consequence, the Union will in principle be responsible for defending
any claims alleging a violation of rules included in an agreement which fall within the Union’s
exclusive competence, irrespective of whether the treatment at issue is afforded by the Union
itself or by a Member State’. 5

1
Full professor of international law, University of Macerata.
2
Regulation (EU) No 912/2014, L 257/121. See Jan Kleinheisterkamp, Financial responsibility in European
international investment policy 63 International and Comparative Law Quarterly 449-476 (2014).
3
Art. 3 of the Regulation, L 257/126.
4
Para. 5 of the Preamble, L 257/121.
5
Ibid., Para. 3 of the Preamble.

77
This statement reflects the longstanding position of the EU on the matter of the allocation of the
international responsibility between itself and its member states, namely that international
responsibility should correspond to competence. If one accepts such view, it can be said that,
since after the Treaty of Lisbon foreign direct investment falls within the scope of the EU
common commercial policy and, consequently, of the EU exclusive competence, 6 the EU would
be the only entity who should bear responsibility for breaches of international obligations on
investment matters, irrespective of whether the obligation in question was also incumbent on the
member states and irrespective of who took the wrongful conduct. This leads to the question of
whether, under international law, the way in which competences are distributed between the
organization and member states may be a criterion for the allocation of international
responsibility. As it will be shown in the next paragraph, the view that international
responsibility should correspond to competence is not generally accepted in international
practice. The existence of a special rule of attribution applicable to the EU is also doubtful.

Whatever the solution to be given to such problem under general international law, the allocation
of international responsibility between the EU and its member states will mainly depend on the
legal regime established by future investment treaties, or by trade agreements with investment
chapters, that the EU will conclude with third states. 7 In particular, it will be decisive whether
these agreements will be concluded by the EU alone or, as mixed agreements, by the EU and its
member states, and in the latter scenario, what will be the content of the treaty provisions
regulating the functioning of investor-state dispute settlement mechanisms. As is well known, the
EU has already negotiated some of these agreements. Paragraph 3 of this article will focus on the
Comprehensive Trade and Economic Agreement (CETA) between Canada and the EU and, in
particular, on the investor-state dispute settlement mechanism provided under that text. The
question to be assessed is what does this mechanism say about the allocation of international
responsibility between the EU and its member states.

2. The Allocation of Responsibility under General International Law: A Competence-Based

Approach?

Article 4 of the Articles on the Responsibility of International Organizations (‘ARIO’), adopted

by the International Law Commission (‘ILC’) in 2011, provides that there is an internationally
6
See Art. 207 of the Treaty on the Functioning of the European Union (‘TFEU’). On the impact of this new EU
competence on the allocation of international responsibility, see generally Eileen Denza, “Responsibility of the
European Union in the Context of Investment”, in Malcolm Evans and Panos Koutrakos (eds.), The International
Responsibility of the European Union: European and International Perspectives, 225-231 (Oxford, Hart Publishing
2013).
7
Also the application of Regulation (EU) No 912/2014 appears to depend, at least in part, on the content of such
treaties. As it has been observed, important parts of the regulation ‘will legally not be applicable if respective
provisions in public international law agreements are non-existent’. Christian Tietje, Emily Sipiorski and Grit
Töpfer, Responsibility in Investor-State Arbitration in the EU — Managing Financial Responsibility Linked to
Investor-State Dispute Settlement Tribunals Established by EU’s International Investment Agreements, Directorate-
General for External Policies of the Union, 30 (December 2012),
http://www.europarl.europa.eu/committees/en/studiesdownload.html?languageDocument=EN&file=79450
(accessed 3 December 2015).

78
wrongful act of an international organization when a conduct amounting to a breach of an
international obligation ‘is attributable to that organization under international law’. 8 In
comments addressed to the ILC, the EU repeatedly pleaded in favour of introducing a special
rule of attribution according to which, at least under certain circumstances and in respect to
certain categories of organizations, the conduct of member states’ organs is to be attributed to the
organization. 9 In particular, according to the EU, in areas of exclusive competence of the
organization only the organization should be regarded as internationally responsible, irrespective
of whether the conduct amounting to a breach of the obligation was taken by an organ of the
organization or by an organ of a member state implementing an act of the organization.
Following such an approach, when acting in a field of exclusive competence of the organization,
organs of the member states are to be regarded as organs of the organization. Their conduct
should therefore be attributed exclusively to the organization.

Such proposal was not retained by the ILC. The ARIO do not contain a special rule of attribution
giving relevance to the fact that the organ of the member state was acting in a field of exclusive
competence of the organization or was implementing an act of the organization. The general rule
on attribution, set forth in Article 6 of the ARIO, relies on the characterization as ‘organ’ or
‘agent’ of the organization of the acting individual or entity. 10 If the wrongful conduct is taken
by an organ of the member state, the conduct must be attributed to that state, and if it is contrary
to an international obligation of the state, it will engage its international responsibility. 11 Under
the rules of attribution set forth in the ARIO, the fact that the conduct in question was taken in a
field of exclusive competence of the organization is not relevant for the purposes of attribution.

It must be noted, however, that the ARIO do give relevance to the fact that, by virtue of the
transfer of competences, the organization may have ‘normative control’ over member states.
Under Article 17, an organization incurs responsibility if it adopts a decision binding a member
state to commit an act that would be wrongful if committed by the organization. 12 In this respect,
the ARIO come close to the solution advocated by the EU, since they recognize that the

8
See United Nations, Report of the International Law Commission, 63rd Session, doc. A/66/10, 81,
http://legal.un.org/ilc/reports/2011/english/addendum.pdf (accessed 4 December 2015).
9
See, for instance, UN doc. A/CN.4/556, p. 32. For an attempt to formulate a special rule of attribution
encapsulating the view advocated by the EU, see Frank Hoffmeister, Litigating against the European Union and its
member States: who responds under the ILC’s draft articles on international responsibility of international
organizations?, 21 European Journal of International Law 723 (2010). See also Esa Paasivirta and Peter Jan Kuijper,
Does One Size Fit All? The European Community and the "Codification" of the Responsibility of International
Organizations 36 Netherlands Yearbook of International Law 169 ff. (2005).
10
Art. 6 provides as follows: ‘1. The conduct of an organ or agent of an international organization in the
performance of functions of that organ or agent shall be considered an act of that organization under international
law, whatever position the organ or agent holds in respect of the organization. 2. The rules of the organization shall
apply in the determination of the functions of its organs and agents’. See UN Report of the International Law
Commission, 84.
11
This conforms to the rule of attribution set forth in Art. 4 of the ILC’s Articles on State Responsibility.
12
Art. 17(1) provides as follows: ‘An international organization incurs international responsibility if it circumvents
one of its international obligations by adopting a decision binding member States or international organizations to
commit an act that would be internationally wrongful if committed by the former organization’. UN Report of the
International Law Commission, 107.

79
organization must bear responsibility for the wrongful conduct of the member state. The
difference lies in the fact that, according to the view advocated by the EU, the organization alone
should bear responsibility for the conduct of the member state’s organ who acts in areas of
exclusive competence of the organization. To the contrary, the ARIO exclude the possibility of
exonerating the member state from its responsibility. Even when implementing a binding
decision of the organization, the conduct of an organ of the state remains a conduct of that state
and cannot be attributed exclusively to the organization. This implies that, in principle, both the
organization and the implementing state can be held responsible for the wrongful conduct,
provided that the international obligation was incumbent on both subjects.

While the ARIO do not give relevance for the purposes of attribution to the scope of the
organization’s competence, the possible existence of a special rule to that effect is not excluded.
Article 64 recognizes the possibility that the conditions for the existence of an internationally
wrongful act ‘are governed by special rules of international law’. 13 Such special rule may apply
to a specific organization, or to a category of organizations, in its relationship with third subjects.
Significantly, in its commentary to Article 64, the ILC raised the question of the possible
existence of a special rule of attribution which would be applicable to the EU. However, it did
not take a position on the existence of such rule. 14

3. Attributing the conduct of member states to the EU: Is there practice supporting the
existence of a special rule of attribution?

At the present stage of development of international practice, the existence of a special rule of
attribution to the effect that conduct of member states implementing EU binding acts is to be
attributed to the EU appears to be doubtful. The practice supporting such rule is far from being
uniform and consistent. It is well known that within the WTO the existence of a special rule of
this kind finds some support in reports of panels which clearly adopted a competence-based
approach in assessing whether a given conduct was to be attributed to the EU or to the member
state. 15 At the same time, however, the case law of the European Court of Human Rights appears
to contradict this view. 16 According to such approach, in the case of EU acts binding a member
state, the conduct of an organ of the member state must in any case be attributed to that state.
The approach adopted by the European Court is also reflected in the Draft agreement on the
accession of the EU to the European Convention on Human Rights. Article 1, paragraph 4, of the
Draft agreement provides that, ‘[f]or the purposes of the Convention, of the protocols thereto and
of this Agreement, an act, measure or omission of organs of a member State of the European
Union or of persons acting on its behalf shall be attributed to that State, even if such act, measure
or omission occurs when the State implements the law of the European Union, including
decisions taken under the Treaty on European Union and under the Treaty on the Functioning of

13
UN Report of the International Law Commission, 168.
14
Ibid.,168-169.
15
For a recent overview of such practice see Peter Jan Kuijper, Attribution, Responsibility, Remedy: Some
Comments on the EU in Different International Regimes, 47 Revue belge de droit international 57 ff (2013).
16
For the relevant case law see the ILC’s commentary to Art. 64 of the ARIO, UN Report of the International Law
Commission, 168-169.

80
the European Union’. This provision is clearly premised on the idea that the conduct of an organ
of a member state must be attributed exclusively to that state, irrespective of whether it was
implementing an EU act or was acting in fields of exclusive competence of the EU.
Significantly, this provision was included following to a proposal made by the EU. According to
the EU, ‘the purpose was to make explicit the attribution rule whereby acts of member States are
and remain only attributable to them even if they are acts of implementation of EU law’. 17

Admittedly, the Draft agreement foresees that member states may be held responsible, together
with the EU, for a violation of the European Convention on Human Rights that stems from an
EU act. Indeed, Article 1, paragraph 4, of the Draft agreement takes care to specify that the
exclusive attribution to the member state ‘shall not preclude the European Union from being
responsible as a co-respondent for a violation resulting from such an act, measure or omission, in
accordance with Article 36, paragraph 4, of the Convention and Article 3 of this Agreement’.
However, as it was explained by the EU representative, Article 1, paragraph 4, is ‘based on the
distinction between attribution of an act and the responsibility for the violation that may derive
from it. The co-respondent accepts to take responsibility for an act which is not attributable to
it’. 18 This solution is in harmony with the distinction between attribution of conduct and
attribution of responsibility envisaged in the ARIO. As we have seen, Article 17 of the ARIO
admits the possibility of a joint and several responsibility of the organization and the member
state when the conduct of a member’s state organ was taken under the normative control of the
organization.

Incidentally, it may be noted that in its recent Opinion 2/13, the European Court of Justice
(‘ECJ’) did not raise any objection with regard to the way in which the Draft agreement
addresses the question of the attribution of a conduct amounting to a breach of the European
Convention on Human Rights. The ECJ only referred to the question of the apportionment of
responsibility between the EU and its member states for an act or omission constituting a breach
of the European Convention, finding that the apportionment of responsibility must be resolved
solely “in accordance with the rules of EU law governing the division of powers between the EU
and its Member States and the attributability of that act or omission”. 19

In sum, when confronted to the problem of attribution of a certain conduct to the EU or to a

member state, one cannot rely on the existence of a special rule giving relevance to the scope of
the EU competence. The existence of such a special rule of attribution does not find confirmation
in international practice. In fact, different answers have been given to this problem in different
treaty contexts. In certain cases, as for instance in the context of the European Convention of
Human Rights, it seems that the conduct of an organ of a member state must be attributed to that
state, even if this conduct is aimed at implementing EU law. In other context, such as within the

17
See Second negotiation meeting between the CDDH ad hoc negotiation group and the European Commission on
the accession of the European Union to the European Convention on Human Rights, doc. 47+1(2012)R02, 2,
(2012),
http://www.coe.int/t/dghl/standardsetting/hrpolicy/Accession/Working_documents/47_1%282012%2902_Extracts_
CDDH_Report_EN.pdf (accessed 4 December 2015).
18
Ibid.
19
Court of Justice of the European Union, Opinion 2/13 of 18 December 2014, EU:C:2014:2454, paras 230 and 234,
http://curia.europa.eu/juris/document/document.jsf?docid=160882&doclang=EN (accessed 4 December 2015).

81
WTO, the existence of an exclusive EU competence has played an important role and third states
as well as WTO panels appear to accept the view that the conduct of member states
implementing EU acts must be attributed to the EU. 20

4. The Allocation of Responsibility in the Investor-State Dispute Settlement Mechanism

Provided by the CETA between Canada and the EU

The CETA between Canada and the EU with Canada includes an investor-state dispute
settlement mechanism which allows an investor to bring a claim against the EU or a member
state for a breach of an obligation under the treaty. 21 This mechanism will probably become the
model for future investment treaties that the Union will conclude with other states. Since any
investment case raises questions of responsibility, by examining the procedure by which an
investor can bring a claim under this mechanism it is possible to infer important indications as to
the allocation of responsibility between the EU and its member states.

One of main features of the mechanism provided by the CETA is that the identification of the
respondent is not left to the investor. Article X-20 provides that, if the investor intends to initiate
arbitration proceedings, ‘the investor shall deliver to the European Union a notice requesting a
determination of the respondent’. Within 50 days the EU must inform the investor as to whether
the EU or a member state will be the respondent. Only if the EU does not inform the investor
within the deadline, the identification of the respondent is left to the investor who in any case
must conform to certain general criteria laid down by the Agreement. The reason behind this
mechanism is clear: it responds to the need to avoid the risk of any external interference in the
division of responsibility between the EU and member states. The idea is that an interference in
the division of responsibility may result, in turn, in an interference in the internal division of
powers. As the ECJ put it in Opinion 2/13 with regard to the responsibility for breaches of the
European Convention on Human Rights, “a decision on the apportionment as between the EU
and its Member States of responsibility for an act or omission constituting a violation of the
ECHR established by the ECtHR is also one that is based on an assessment of the rules of EU
law governing the division of powers between the EU and its Member States and the
attributability of that act or omission”. 22 To avoid the risk of external interference in the
application of such rules, in the investor-state dispute settlement mechanism established by the
CETA only the EU is recognized the power, at least at the first stage, to determine who acts as
the respondent.

So far, it is not clear whether CETA will be concluded by the EU and its member states as a
mixed agreement. It is apparent that, if CETA will not be concluded as a mixed agreement, the
EU alone will bear international responsibility. Indeed, if the EU and Canada will be the only

20
For the factors that may explain these different legal regime, see Peter Jan Kuijper, Attribution, Responsibility,
Remedy: Some Comments on the EU in Different International Regimes 47 Revue belge de droit international 57 ff
(2013).
21
See Section 6 of Part X of the CETA, 26 September 2014
http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf (accessed 4 December 2015).
22
Opinion 2/13, para. 230.

82
parties, as a matter of international law the Agreement will not create rights or obligations for
member states. 23 The Agreement will be binding upon member states only under EU law, as
provided by Article 216 (2) TFEU. In such case, an interesting issue is how to reconcile the fact
that member states are not parties to the Agreement with the fact they can be requested to act as
the respondent in the dispute settlement mechanism established under part X of the Agreement.
Curiously, Article X-20 refers to fact that the claim to be submitted to an arbitral tribunal must
concern ‘an alleged breach of the Agreement by the European Union or a Member State of the
European Union’. Obviously, under international law, member states cannot breach the
Agreement if they are not parties to it. Only the EU can breach the Agreement. However,
nothing excludes that such breach on the part of the EU may be a consequence of the conduct
taken by a member state. 24 In a recent Advisory opinion the International Tribunal for the Law of
the Sea referred to a situation of this kind when it recognized that “an international organization
which in a matter of its competence undertakes an obligation, in respect of which compliance
depends on the conduct of its member States, may be held liable if a member State fails to
comply with such obligation and the organization did not meet its obligation of “due
diligence”. 25 By way of example, the Tribunal mentioned the case of a fisheries agreement
concluded between the EU and a coastal state, by which the EU commits itself to ensure that
vessels flying the flag of a member state comply with the fisheries laws and regulations of the
coastal state. Significantly, the Tribunal, while acknowledging that the EU had to bear
responsibility for the conduct of its member states, did not found that that conduct was to be
attributed to the EU. The conduct triggering responsibility is the failure by the organization to
comply with its due diligence obligation.

Apart from this, it remains the problem of determining the legal status of a member state when it
acts as the respondent within the framework of the dispute settlement mechanism provided by a
treaty to which it is not a party. Again, the fact that a member state acts as the respondent cannot
entail that it has to be regarded as the entity which bears international responsibility. The
mechanism by which the EU is given the possibility to decide who acts as the respondent would
not concern the allocation of international responsibility between the EU and the member states.
It would rather be a mechanism, operating in the relationship between the EU and the member
states, by which they distribute internally among themselves the burden to defend against the
claims of the investor and to pay any adverse award. In this perspective, at least from the point of
view of international law, the role of a member state within this dispute settlement mechanism
could be assimilated to that of an organ of the EU. While only the EU can be regarded as the
subject that is called to bear responsibility, the EU, when operating within this dispute settlement
mechanism, is given the possibility to decide whether to act directly or whether instead to act
through its member states.

23
The view that agreements concluded by an organization do not bind member states is widely recognized. See
Catherine Brolmann, International Institutional Veil in Public International Law. International Organisations and
the Law of Treaties (1st ed., Oxford, Hart Publishing 2007).
24
As it has been observed, the conduct of a member state may ‘cause the breach of an obligation undertaken by the
EC, when the obligation also covers Member States’ conduct’. See Giorgio Gaja, How Does the European
Community’s International Responsibility Relate to Its Exclusive Competence? in 2 Studi di diritto internazionale in
onore di Gaetano Arangio-Ruiz 748 (Napoli, Editoriale Scientifica 2004).
25
International Tribunal for the Law of the Sea, Request for an advisory opinion submitted by the Sub-Regional
Fisheries Commission, Advisory Opinion, 2 April 2015, para. 168.

83
If CETA will be concluded as a mixed agreement, both the EU and its member states may in
principle bear international responsibility for the breach of the Agreement. The CETA does not
deal with the partition of the respective competences of the EU and member states and hence
with the participation of their respective obligations. In the absence of a partition of competences
and obligations, both the EU and member states appear to bear responsibility in case of
breaches. 26 In this scenario, the fact that a member state acts as the respondent should be taken as
an implicit recognition that it is that state which bears international responsibility. Indeed, what
the arbitrator is called upon to adjudge is whether the respondent has breached the agreement and
to determine the legal consequences stemming from its responsibility. 27

As it has been said, CETA does not provide any indication about the criteria by which the EU
will determine the respondent in arbitration proceedings initiated by an investor. It simply
provides that it is for the EU to inform the investor as to who will act as the respondent.
Paragraph 4 of Article X-20 only provides some criteria for determining the respondent in the
case in which the EU does not inform the investor within 50 days of the notice. These criteria
provide some interesting indications about the allocation of responsibility. Under this provision,
the determination of the respondent is based, at least in principle, on the attribution of the
contested measure. Paragraph 4 provides that ‘where the measures identified in the notice are
exclusively measures of a Member State of the European Union, the Member State shall be
respondent’; by contrast, ‘where the measures identified in the notice include measures of the
European Union, the European Union shall be respondent’. This text is not free from a certain
ambiguity. In particular, it is not entirely clear when a measure can be regarded as ‘including
measures of the EU’. With all probability, it should be interpreted to the effect that the EU must
act as the respondent when the measure in question was a measure of the member state
implementing a binding act of the EU. This interpretation would substantially conform to the
criteria laid down in Regulation (EU) No 912/2014. It would also reflect the competence-based
approach to the allocation of international responsibility which has been constantly advocated by
the EU.

5. Concluding remarks

When confronted with situations which raise the question of the allocation of international
responsibility between itself and its member states, the EU’s main concern appear to be that of
avoiding the risk that a decision on that question may lead to an external interference with the
internal division of powers. This concern has been forcefully expressed by the ECJ in its recent
opinion on the accession of the EU to the European Convention on Human Rights. It even found
its place among the grounds on which the ECJ relied for justifying its conclusion that the Draft
agreement on accession was not compatible with the EU Treaty. According to the ECJ,
permitting to the European Court of Human Rights to decide on the apportionment as between

26
See Christian Tomuschat, “The international responsibility of the European Union” in Enzo Cannizzaro (ed.), The
European Union as an actor in international relations, 185 (Kluwer Law International 2002); Gaja, European
Community’s International Responsibility, 752.
27
Under Art. X-17 of CETA, ‘an investor of a Party may submit to arbitration under this Section a claim that the
respondent has breached an obligation under’ the Agreement.

84
the EU and its member states of responsibility for an act or omission constituting a violation of
the European Convention on Human Rights would ‘risk adversely affecting the division of
powers between the EU and its Member States’. 28

If future investment treaties will be concluded as mixed agreements by both the EU and its
member states, the risk of an external interference in the division of responsibility cannot be
excluded. The Energy Charter Treaty provides a pertinent example in this regard. Under the
Energy Charter Treaty, and by virtue of the statement deposited by the EU at the time of its
ratification, 29 the investor is simply invited to seek clarification from the EU on whom to
challenge. Moreover, the investor is given the possibility of initiating proceedings against both
the EU and its member states. In such situation, there is the risk that the investment tribunal, by
deciding over who must bear responsibility, would interfere with the internal division of powers
between the EU and its member states. 30

By contrast, the regime established under the draft text of CETA appears to exclude, or at least to
greatly attenuate, such risk. By leaving to the EU the decision as to who will act as the
respondent, this regime will permit to the EU to foster a competence-based approach to the
problem of allocating international responsibility. In particular, the EU can accept to bear
responsibility in cases in which the contested measures was taken by the member state for the
purposes of implementing EU acts. Moreover, contrary to the solution envisaged by the Energy
Charter Treaty, under the regime established by the CETA there seems to be no room for the
possibility of a joint and several responsibility of the EU and its member states.

In sum, this mechanism appears to meet EU’s concerns about the potential risks ensuing from an
external decision on the allocation of international responsibility between the EU and its member
states. It is to be expected that the mechanism provided under the draft text of CETA with
Canada will reflect a more general trend. 31

28
Opinion 2/13, para. 231.
29
See Statement submitted by the European Communities to the Secretariat of the Energy Charter pursuant to Art.
26(3)(b)(ii) of the Energy Charter Treaty, OJ (1998) L 69/115, at 115.
30
On the question of whether investors could rely on the Energy Charter Treaty in order to bring a claim against
Hungary for measures taken in application of EU law, see Electrabel SA v Hungary, Decision on jurisdiction,
applicable law and liability, ICSID Case No ARB/07/19, IIC 567 (2012), 30 November 2012.
31
The advantages of this mechanism for the EU are highlighted by Peter Jan Kuijper and Esa Paasivirta, EU
international responsibility and its attribution: from the inside looking out, in Malcolm Evans and Panos Koutrakos
(eds.), The international responsibility of the European Union: European and international perspectives, 69
(Oxford, Hart Publishing 2013).

85
The Promotion of Sustainable Development through EU Trade Instruments
Wybe Th. Douma*

The EU wants to ensure that its trade actions are

supportive of sustainable development within the EU, in
our partner countries, and globally. Coherence and mutual
supportiveness among these three elements are the basis
for achieving sustainable development. 1

1. Introduction

The European Union has committed itself to ensuring that its trade policy is not only supportive
of economic development of the Union, but also of broader ‘non-trade’ issues like protection of
the environment, social and human rights. Moreover, its trade policy is to stimulate sustainable
development within the EU, in its partner countries, and globally. These commitments were laid
down in the Treaty of Lisbon, and thus form the constitutional context within which EU trade
policy has to operate.
“In its relations with the wider world, the Union … shall contribute to the sustainable
development of the Earth”, it is prescribed first of all in art. 3(5) TEU. More specifically, the
Union is to define and pursue common policies and actions in order to “foster the sustainable
economic, social and environmental development of developing countries”, art. 21(2)(d) TEU
adds. 2 It is also to respect these principles and pursue these objectives in the development and
implementation of the different areas of the Union's external action, and of the external aspects
of its other policies (art. 21(3) TEU). Art. 205 TFEU confirms that the Union's external action
(including its common commercial policy) shall be guided by the principles, pursue the
objectives and be conducted in accordance with the general provisions laid down in Articles 21
TEU. The introduction of specific objectives and principles of EU external action has been
described as representing “common values that guarantee unity and consistency in the exercise
of Union powers”. 3 As the introduction of such values in itself might not be enough, these
changes are investigated here as a manner of contributing to unity and consistency. This
approach is useful in light of the fact that the Lisbon Treaty merely made it explicit that EU trade
policy is to promote protection of the environment and the sustainable development of the EU, as

* Wybe Th. Douma is a senior researcher in EU Law and international trade law at the T.M.C. Asser Instituut.
1
DG Trade website http://ec.europa.eu/trade/policy/policy-making/sustainable-development (accessed 23 December
2015).
2
Christoph Vedder, ‘Linkage of the Common Commercial Policy to the General Objectives for the Union’s External
Action’, in Marc Bungenberg and Christoph Herrmann (eds.), Common Commercial Policy after Lisbon, European
Yearbook of International Economic Law, 115, 125 (2013), commented that it is “remarkable that the term
sustainable development aims not only at the economy but also at the society and the environment.” Presumably, the
word ‘remarkable’ is used here in the sense of ‘worth noticing’ rather than ‘extraordinary’.
3
Angelos Dimopoulos, The Effects of the Lisbon Treaty on the Principles and Objectives of the Common
Commercial Policy, 15 Foreign Affairs Review, 153, 169 (2010).

86
well as of its trading partners. The duty to integrate environmental aspects in its trade policy (and
all other policy areas) existed already, ever since the environmental integration principle was
introduced in the treaties in 1987 through the Single European Act (SEA). 4 The integration
principle was moved from the environmental title to a more prominent position at the start of the
treaty in 1997, through the Treaty of Amsterdam. The latter treaty also added a reference to the
broader concept of sustainable development. 5 The environmental integration provision is
nowadays enshrined in Art. 11 TFEU, and states that “[e]nvironmental protection requirements
must be integrated into the definition and implementation of the Union's policies and activities,
in particular with a view to promoting sustainable development.”
The EU has employed various means to integrate sustainable development in its policies,
including its external trade policy. Notably, the new Generalised System of Preferences (GSP+)
offers the poorest developing countries advantages if they ratify and effectively implement key
international conventions on sustainable development and labour rights. At the WTO level, the
EU stimulates the adoption of a environmental goods agreement. This paper will concentrate on
yet another way in which the EU aims at promoting sustainable development, namely trade
agreements – which in the next future will also encompass investment. It will set out which
initial efforts were made to make the environmental integration principle operational with respect
to EU trade agreements, and the process of ensuring that EU trade agreements actually contained
sustainable development chapters. In order to answer these questions, first of all, section 2 will
scrutinise why the EU got involved with protection of the environment and sustainable
development. This is all the more remarkable in light of the fact that the organisation started off
as the European Economic Community, without explicit competences in the area of protection of
the environment. The section will also briefly discuss what sustainable development actually
means. In section 3, the different methods developed by the EU institutions aimed at integrating
sustainable development in EU trade policy, in other words in order to make the integration
principle operational, and at ensuring coherency and mutually supportiveness, will be turned to.
The focus will be on policy documents that deal with sustainable development (notably the EU
Sustainable Development Strategies and the Cardiff Process), impact assessments (employed
prior to the start of trade negotiations), and Trade Sustainable Impact Assessments (used during
negotiations). By not only examining what these strategies and instruments encompass, but also
the way in which they came about, some of the differences of opinion between the institutions
over these issues become visible. Additionally, the historical perspective will show that the
strategies and instruments were refined over time in order to improve their functionality. Against
this background, in the next section 4 the actual trade agreements that were concluded since 2008
and contain provisions on sustainable development will be examined. In section 5, concluding
remarks are presented.

2. From economic development to sustainable development

4
Art. 130r(2) EC Treaty, last sentence reads: “Environmental protection requirements shall be a component of the
Community’s other policies.” The SEA entered into force on 1 July 1987.
5
The Treaty of Amsterdam entered into force on 1 May 1999 and moved the integration principle from the
environment title up front to the start of the EC Treaty (article 6 EC Treaty).

87
Founded in 1957, the European Economic Community (EEC) originally had as its task
“establishing a common market and progressively approximating the economic policies of
Member States, to promote throughout the Community a harmonious development of economic
activities, a continuous and balanced expansion, an increase in stability, an accelerated raising of
the standard of living and closer relations between the States belonging to it.” 6 As ‘standard of
living’ refers to the level of subsistence or material welfare of a community, class or person, the
well-being of (groups of) individuals was not covered. In line with the name European Economic
Community and the task quoted, at its start the organisation focused solely on economic issues.
A decade later, negative environmental and human health effects of industrialisation, transport
and increased use of chemicals were becoming visible. Individual Member States began to
introduce national environmental protection laws to counter these effects. 7 The EEC responded
by adopting harmonising measures in order to ensure that such national initiatives would not
disrupt the functioning of the EEC’s common market. 8 These harmonising measures form the
first examples of EEC environment and human health protection legislation. The EEC
involvement with protection of the environment did not remain reactive and ad hoc. The
organisation began developing a policy aimed at ensuring that economic development takes the
environment and human health into account. The reasoning that was employed by the Heads of
State or Government of the EEC Member States assembled at the Paris Summit of 1972
continues to be relevant up until today: economic expansion is not an end in itself, it should
result in an improvement in the quality of life as well as in standards of living, hence particular
attention is to be given to protecting the environment, so that progress may really be put at the
service of mankind. 9 Economic welfare and quality of life (well-being) should go hand in hand,
in other words, and development was no longer regarded as a mere quantitative but also as a
qualitative concept.
In a declaration on Europe’s environmental policy from 1983, the Council expressed that
integration forms one of the priorities for future action. 10 This interpretation of the EEC Treaty
made it possible to adopt environmental measures, although a specific legal basis for such
measures was lacking at the time. Instead, the safety net provision that allowed for the adoption
of measures necessary to attain objectives without an explicit legal basis was used. 11 The idea of
economic development not being an aim in itself, but involving social and environmental aspects
would later become known as sustainable development.

6
Art. 2 EEC Treaty.
7
Notably in Germany, where forests started to become negatively affected by acid rain (‘Waldsterben’).
8
Examples of the earliest EEC measures in this respect are Council Directive 67/548/EEC on the approximation of
laws, regulations and administrative provisions relating to the classification, packaging and labeling of dangerous
substances, OJ 196 of 16 August 1967, 1–98 and Council Directive 70/220/EEC on the approximation of the laws of
the Member States relating to measures to be taken against air pollution by gases from positive-ignition engines of
motor vehicles, OJ L 76 of 6 April 1970, 1–22. In the preamble of the latter directive, German and French measures
on the curbing of air pollution by cars are explicitly mentioned. Such directives were based on the common market
legal basis Art. 100 EEC (now Art. 114 TFEU). At times, the safety net provision of Art. 235 EEC (now Art. 352
TFEU) was used, for instance, to adopt the Wild birds directive 79/409/EEC (now Directive 2009/147/EC, OJ 2010,
L20/7).
9
Bull. EC 10-1972, Point I.
10
Information and notices, OJ 1983, C46/1.
11
See footnote 8 above.

88
The concept sustainable development does not merely express an economic development that is
able to last or continue for a long time. It refers to a broader notion of economic development,
namely one that encompasses concern for the environmental and social aspects associated with
such development. The concept was described in the 1987 Brundtland report ‘Our Common
Future’ as follows: “Sustainable development is development that meets the needs of the present
without compromising the ability of future generations to meet their own needs.” 12 That report
was issued in preparation of the 1992 UN Conference on Environment and Development
(UNCED) that convened in Rio de Janeiro. Since then, the concept was made operational in
various manners, adding to its practical usefulness. In addition, several principles crystallised
that need to be observed in order to transition towards more sustainable patterns of production
and consumption. Many of these principles were already laid down in the non-binding Rio
Declaration of 1992, also adopted at the UNCED. The core principles were reiterated in the 2002
ILA New Delhi Declaration of Principles of International Law Relating to Sustainable
Development. 13 They include the duty of States to ensure the sustainable use of natural
resources, the principles of equity and eradication of poverty, common but differentiated
responsibilities, precaution, public participation and access to information and justice, good
governance, and the principle of integration and interrelationship, in particular in relation to
human rights and social, economic and environmental objectives. 14
Over time, it became clear that the name ‘EEC’ no longer covered all the issues it was dealing
with. Hence, it was renamed European Community at first (dropping the adjective ‘Economic’),
and later, European Union. In 1992, the EC Treaty incorporated the task to promote throughout
the Community a harmonious, balanced and sustainable development of economic activities, and
a high level of protection and improvement of the quality of the environment, the raising of the
standard of living and quality of life (art. 2 EC).
In 2009, when the Lisbon Treaty entered into force, the provisions that explicitly demanded that
EU trade policy contribute to sustainable development were added. The latter provisions had
actually been designed at an earlier stage: they also feature in the 2004 proposal for a Treaty
establishing a Constitution for Europe that was rejected by the majority of the French and Dutch
citizens. 15

3. How to integrate sustainability into EU trade policies?

12
World Commission on Environment and Development (WCED), Our common future, 43 (Oxford University
Press 1987).
13
At the 70th Conference of the International Law Association (ILA) that was held in New Delhi, India, 2–6 April
2002.
14
See for further information notably Nico Schrijver, The evolution of sustainable development in international law
(Brill Nijhoff 2008).
15
See Articles I-3(4) and III-292 (corresponding with Arts 3(5) and 21(2) TFEU). The idea to create tailor-made
integration provisions in various titles on specific policies had been raised before, namely when the Treaty of
Amsterdam was being discussed. At that moment in time, notably Germany had argued that strategic and legal
reasons spoke against introducing environmental clauses one by one into individual issue areas (EP, White paper on
the 1996 IGC, Vol. III, 9 (1996)). See Dhondt (2002), 24.

89
3.1 Developing integration and sustainable development strategies
A challenging start: Pre-Lisbon endeavours (1993-2003)

It is beyond the scope of this paper to outline the EU’s pre-Lisbon developments regarding the
integration of sustainable development in other policy areas in detail. However, the following
attempts to give an overview of some of the main steps taken in this regard.
As was explained above, the duty to integrate environmental considerations in other policy areas
was introduced in the European treaties in 1987. Over ten years passed before the Luxembourg
European Council requested the Commission to draw up a strategy to implement this duty. 16 A
draft strategy17 was presented in 1998 in preparation for the Cardiff Council meeting. The
concise document was intended to develop practical steps towards implementing the integration
principle in the Community institutions, but offers not much more than a couple of general
guidelines. Rather than proposing to develop one common approach to integration, separate
strategies were to be developed in respect of specific areas, including trade policy. The different
Council formations were invited to develop strategies on the integration of environmental and
sustainable development considerations, and in that way give effect to the environmental
integration clause. 18 In October 1999, the Environment Council adopted conclusions on
‘Sustainable Development and Integration of Environmental Concerns’ in which a range of
environmental policy objectives as well as requirements for the Cardiff Process were
formulated. 19

The process did not take off without glitches. It proved to be impossible to present a Cardiff
Strategy on Trade and Sustainability by the year 2000, as had been requested. Additionally, in
March 2001, an analysis concluded that the nine Cardiff strategies prepared until then varied
widely in tone and content, were not very concrete, lacked environmental targets, and that none
could be considered adequate as yet. Another setback was the fact that the 2000 Lisbon Strategy
on growth and jobs lacked an environmental and sustainability dimension. This shows that
achieving internal coherence and integrating all aspects of sustainable development into an
initiative like the Lisbon Strategy formed a bridge too far back in 2000.

The external dimension of the sustainable development policy came about equally slow. The
2001 EU Sustainable Development Strategy (EU SDS) entitled ‘A sustainable Europe for a
better world’ 20 lacked, in spite of its name, external aspects. Hence, the Commission issued the
communication ‘Towards a global partnership for sustainable development’ (2002 ‘EU
16
European Council (Luxembourg), 12 and 13 December 1997, Presidency Conclusions.
17
Communication from the Commission to the European Council, Partnership for Integration - A Strategy for
Integrating Environment into European Union Policies, COM(98)333, http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:51998DC0333&from=EN (accessed 23 December 2015).
18
Cardiff European Council 15 and 16 June 1998, Presidency Conclusions. As was noted immediately, there exists
an inherent risk in asking the individual Council formations to come up with their own plans to alter their policies,
as they might not be willing to alter their core business for the sake of environment. Also, it is far from evident that
sectoral councils will deliver without the continuous need to coordinate and negotiate with those, who are defending
the environment. See Hey (1999), 10.
19
Also see Press release IP/99/877, Commission calls for better integration of environment in EU policies, and an
improved system of Environment and Integration Indicators, Brussels, 24 November 1999,
http://europa.eu/rapid/press-release_IP-99-877_en.htm (accessed 23 December 2015).
20
See Presidency conclusions Göteborg European Council 15 and 16 June 2001.

90
SDS+’) 21, aiming to complement the 2001 EU SDS externally. However, the document
concludes that “more systematic and far-reaching review of existing and future policies and
action is needed to improve coherence and increase the Union's credibility in the international
debate”. 22 In other words: it did not yet provide all the answers.
In the same year, a unified system for ex-ante Impact Assessment (IA) of all major policy
proposals was introduced by the Commission. 23 At the start, the IA was not yet used to assess
plans for individual trade agreements. In 2010, in advance of a decision to request a negotiating
mandate, Commission services decided to undertake an impact assessment of a possible FTA
with Japan. 24 Since then, other major new trade initiatives like the proposed investment
agreement with China and the Transatlantic Trade and Investment Partnership (TTIP) with the
USA have been assessed before the start of negotiations.

In 2004, the Commission presented an evaluation of the results achieved in the Cardiff Process.
It set out that while progress had been achieved, the process still suffered from several
shortcomings. 25 Environmental integration commitments were still largely to be translated into
further concrete results. Extended Impact Assessments were to be fully implemented. In
February 2005, the Commission proposed “to include a substantive element on sustainable
development in all ongoing or future bilateral or regional negotiations.” In March 2005, a
revised Lisbon Strategy was adopted by the European Council. This time around, attention was
also paid to sustainable development. In June of the same year, the European Council adopted
Guiding Principles for Sustainable Development, and in December a review of the EU SDS was
discussed.
2006 Renewed EU SDS and an external dimension for the Lisbon Strategy

The European Council of 16/17 June 2006 adopted the Renewed EU Sustainable Development
Strategy 26 while claiming it formed “the overall framework within which the Lisbon Strategy

21
Communication from the Commission to the European Parliament, the Council, the Economic and Social
Committee and the Committee of the Regions, COM(2002) 82 final, 13 February 2002,
http://www.europarl.europa.eu/meetdocs/committees/deve/20020417/com_2002_82_en.pdf (accessed 28 December
2015).
22
Id., 14.
23
Communication from the Commission on Impact Assessment, COM(2002) 276 final, 5 June 2002, http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2002:0276:FIN:EN:PDF (accessed 28 December 2015).
24
See Commission Staff Working Document, Impact Assessment Report on EU – Japan Trade Relations,
SWD(2012)209 final, 18 July 2012, http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52012SC0209&from=EN (accessed 28 December 2012), Commission Staff
Working Document, Executive Summary of the Impact Assessment Report on EU-Japan Trade Relations,
SWD(2012)210 final, 18 July 2012, http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52012SC0210&from=EN (accessed 28 December 2015) and the Opinion of the
Impact Assessment Board Ares(2011)1336356.
25
Commission Working Document, Integrating environmental considerations into other policy areas- a stocktaking
of the Cardiff process, COM(2004)394, Brussels, 1 June 2004, http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2004:0394:FIN:EN:PDF (accessed 28 December 2015).
26
Council of the European Union, Renewed EU Sustainable Development Strategy, 26 June 2006
http://register.consilium.europa.eu/doc/srv?l=EN&f=ST%2010917%202006%20INIT (accessed 28 December
2015).

91
provides the motor of a more dynamic economy” 27 and underlining that the EU SDS and the
Lisbon Strategy on growth and jobs complemented each other. 28

Also in 2006, the Commission presented ‘Global Europe: Competing in the world - A
contribution to the EU's Growth and Jobs Strategy’ 29 that complemented the 2005 revised Lisbon
Strategy with an external policy. Using trade policy to stimulate growth and creating jobs in
Europe is at the heart of this policy paper. At the same time, it is recognised that globalisation
“puts new pressures on natural resources, in particular our climate” 30 and that the European
values, including social and environmental standards and cultural diversity, should be promoted
around the world. 31 Consequently, it is explained that new FTAs “could include incorporating
new co-operative provisions in areas relating to labour standards and environmental
protection.” 32 In spite of this less than wholehearted language, in practice all bilateral agreements
that the EU concluded recently do contain provisions on trade and sustainable development, as
will be expanded upon in section 4 below.

Europe 2020

In 2010, the Commission revealed a follow up of the Lisbon Strategy, under the title ‘Europe
2020. A strategy for smart, sustainable and inclusive growth’. 33 ‘Sustainable growth’ is defined
as a more resource efficient, greener and more competitive economy – and hence is not another
manner of describing sustainable development. Unfortunately, the link with integrating
sustainable development aspects is not laid down in the document, and an external dimension is

27
Idem, point 8 at p. 6.
28
Ibidem, point 7 at p. 6. It was recognised that the EU SDS primarily focuses on the quality of life, on intra- and
intergenerational equity and coherence between all policy areas, while the Lisbon Strategy primarily focused on
increasing competitiveness, economic growth and job creation.
29
Communication from the Commission to the Council, the European Parliament, the European Economic and
Social Committee and the Committee of the Regions, Global Europe: Competing in the World, A Contribution to the
EU’s Growth and Jobs Strategy, COM(2006)567, 4 October 2006, http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2006:0567:FIN:en:PDF (accessed 28 December 2015).
30
Id., 3.
31
Reference is made to the Communication from the Commission to the Council, the European Parliament, the
European Economic and Social Committee and the Committee of the Regions, Promoting decent work for all: the
EU contribution to the implementation of the decent work agenda in the world, COM(2006)249, 24 May 2006,
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52006DC0249&from=EN (accessed 28
December 2015).
32
P. 9. Emphasis added by the author. In the Council Conclusions following the Commission's
Communication "Global Europe: Competing in the World", 2760th General Affairs Council meeting, Brussels, 13
November 2006 the Global Europe communication is welcomed. The need to cooperate with EU trading partners to
improve social and environmental standards is stressed, and the “sustainable and economic development” of
developing countries,
http://www.eu2006.fi/NEWS_AND_DOCUMENTS/CONCLUSIONS/VKO46/EN_GB/1163413024421/_FILES/7
6245439416893771/DEFAULT/91614.PDF (accessed 28 December 2015).
33
European Commission, Communication from the Commission, Europe 2020 - A strategy for smart, sustainable
and inclusive growth, COM(2010)2020, Brussels, 3 March 2010, http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52010DC2020&from=en (accessed 28 December 2015), see for more
information also http://ec.europa.eu/eu2020/index_en.htm (accessed 28 December 2015).

92
also lacking. Some of these topics were picked up in the communication ‘Trade, growth and
world affairs, trade policy as a core component of the EU’s 2020 strategy’. 34 It states that
“[t]hrough trade, we should also promote the greening of the world economy and decent work”
and drive improvements in social inclusion. 35 The new institutional framework of the Lisbon
Treaty, it is explained, “should be seen as a major opportunity in that it lends greater
transparency and legitimacy to EU trade policy, gives a new voice to the European Parliament in
trade matters, and […] sets the stage for a mutual reinforcement of our trade and external
action”. 36 The EU will “continue to give particular attention to the implementation of sustainable
development chapters in our trade agreements, and to close cooperation with civil society” 37 This
is not reflected in the chapter on enforcement and implementation, which focuses on market
access and intellectual property rights protection. The very brief chapter on consultations and
impact assessments, only mentioned that to help monitor the impacts of existing EU trade
agreements, ex post evaluations will be carried out on a more systematic basis. 38 All in all, both
the Europe 2020 Strategy and the communication ‘Trade, growth and world affairs’ contain little
or no new explanations as to how sustainable development will be further incorporated in EU
trade policy.

Trade, Growth and Development (2012)

In 2012, the Commission issued its Communication on Trade, Growth, and Development 39 in
which it committed itself to better assess the impact of trade initiatives on the EU and its trading
partners, and to ensure that the analyses which are carried out address all significant economic,
social, human rights and environmental impacts, and build upon a wide consultation of relevant
stakeholders. In addition, it was stressed that the analyses should also help design accompanying
Aid for Trade measures 40 and that developing countries will be assisted in the implementation of
EU schemes regarding the sustainable management of key natural resources that are to be placed
on the EU market, such as the ones on timber and fisheries. 41

Trade for all (2015)

34
European Commission, Communication from the Commission to the European Parliament, the Council, the
European Economic and Social Committee and the Committee of the Regions, Trade, Growth and World Affairs,
Trade Policy as a Core Component of the EU’s 2020 Strategy, COM(2010) 612, 9 November 2010, http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0612:FIN:EN:PDF (accessed 03 January 2016).
35
Id., 4-5.
36
Id., 5.
37
Id., 8.
38
Id., 14.
39
European Commission, Communication from the Commission to the European Parliament, the Council, the
European Economic and Social Committee, Trade, growth and development: tailoring trade and investment policy
for those countries most in need, COM(2012)22, 27 January 2012,
http://trade.ec.europa.eu/doclib/docs/2012/january/tradoc_148992.EN.pdf (accessed 03 January 2016).
40
Id., 13-14.
41
Notably the EU Timber Regulation No 995/2010, OJ L 295, 23–34, 12 November 2010 and Council Regulation
(EC) No 1005/2008 against Illegal, Unreported and Unregulated (IUU) fishing, OJ L 286, 1–32, 29 October 2008.

93
Recently, a new strategy was proposed by the European Commission, entitled ‘Trade for all.
Towards a more responsible trade and investment policy’. 42 It sets out that in line with the
principle of policy coherence for development, the EU needs to make sure that its trade and
investment initiatives contribute to sustainable growth and job creation, and minimise any
negative impact on least developed countries (LDCs) and other countries most in need.
Furthermore, an in-depth analysis of the possible effects of new FTAs on LDCs in sustainability
impact assessments, with a view to designing flanking measures when necessary, was
announced.

Especially relevant is the remark that “[a]s FTAs enter into force, the EU will have to make sure
that the provisions on trade and sustainable development are implemented and used effectively,
including by offering appropriate support through development cooperation.” This is described
as “a crucial step in bringing about change on the ground”, because “[r]especting the
commitments on labour rights and environmental protection can be a significant challenge for
some of our trading partners.”
In order to achieve these objectives, the Commission will focus on the implementation of the
sustainable development dimensions of FTAs as a core component of the enhanced partnership
with Member States, EP and stakeholders. It also plans to prioritise work to implement
effectively the core labour standards, as well as health and safety at work in the implementation
of FTAs and GSP, and to increase the priority given to the sustainable management and
conservation of natural resources (biodiversity, soil and water, forests and timber, fisheries and
wildlife) and to the fight against climate change in FTAs and their implementation. Furthermore,
the Commission wants “to better link trade policy instruments with the aim of addressing labour
rights and environmental protection (GSP, sustainable development chapters in FTAs) to
aid/cooperation actions in these areas to help our partners ensure high levels of protection”, and
plans to “promote an ambitious and innovative sustainable development chapter in all trade and
investment agreements.” 43 Sustainable development considerations are to be taken into account
in all relevant areas of FTAs, for example, energy and raw materials or public procurement. 44
This new strategy thus proposes to shift the emphasis from the law on the books to the
effectiveness of the law in practice. Before returning to effectiveness issues, estimating effects of
trade agreement with the help of impact assessments is turned to briefly.

3.2 Trade Sustainable Impact Assessments

In 1998, the European Commission proposed to integrate sustainable development into trade
negotiations by developing an assessment tool, the Trade Sustainability Impact Assessment

42
European Commission, Trade for all. Towards a more responsible trade and investment policy, Brussels, October
2015, http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153846.pdf (accessed 03 January 2016).
43
Notably, it is explained that TTIP should contain far-reaching commitments on all core labour rights in line with
the fundamental conventions of the International Labour Organisation (ILO), It should also contain far-reaching
commitments on environmental protection in relation to multilateral environment agreements.
44
The draft also mentions the negotiation of the EGA, aimed at eliminating tariffs on green goods, open markets for
green services, and the inclusion of a mechanism to tackle non-tariff barriers in the future.

94
(Trade SIA). 45 The instrument was introduced in 1999, ahead of the new round of WTO
multilateral trade negotiations, and was aimed at examining the potential impact that the
European proposals for these negotiations will have on sustainable development, and ensuring
that these negotiations will “take full account of the needs of developing countries and the
objective of sustainable development”. 46 Since then, the tool was employed for all major
bilateral and multilateral trade negotiations. After having been used several years, a Handbook
for Trade SIA was issued in 2006. 47 By the end of 2014, 22 Trade SIAs had been conducted, and
several were ongoing. 48 A draft second edition of the Handbook 49 was published in 2015 and
was to be finalised by the end of the same year. The new edition claims to already reflect
recommendations for improvement from stakeholders, 50 but fails to identify which of the
comments were actually taken into account. 51
The Trade SIAs consist of two components. An analysis of the potential economic, social,
human rights, and environmental impacts that a trade agreement could have, in the EU, in the
partner country(ies) and in other relevant countries is carried out by an independent consultant.
Furthermore, a consultation process is carried out which is to ensure a high degree of
transparency and the engagement of relevant stakeholders in the conduct of the SIA inside and
outside the EU. The consultant is asked to set out a large variety of consequences of an
envisaged trade agreement, and options to mitigate negative effects and/or stimulate positive
effects. Usually, the Trade SIA is performed during the negotiation process, and the results
thereof are fed into and steer the negotiations. Following the conclusion of the SIA, the
Commission services study the SIA findings and set out their own views on the identified
impacts and the policy measures proposed to address them in a position paper. Unfortunately,
that paper is not subject to public consultation.
In practice, concerns expressed in SIAs can be addressed in various ways. First of all, concrete
measures can be proposed in the SIA and adopted by the Commission. Secondly, the
Commission services can identify flanking measures in its position paper, for instance aid,
cooperation and technical assistance. A third way would be through ex post monitoring and the
recommendation of further mitigation or enhancement measures to be designed and applied if
necessary. Of course, the position paper can also decline to propose concrete measures to address
concerns identified in the SIAs. Whether and to what extent recommendations are followed in
practice is beyond this paper, but some position papers contain clear examples of cases in which
45
The announcement that this instrument was to be used was made by Sir Leon Brittan in a speech at the WTO High
Level Symposium on Trade and Environment in November 1998. Source: European Commission, Sustainable
impact assessment of proposed WTO new round of multilateral trade negotiations, 1999,
http://trade.ec.europa.eu/doclib/docs/2003/april/tradoc_112053.pdf (accessed 03 January 2016).
46
Id., 1.
47
European Commission, DG Trade, Handbook for Trade Sustainability Impact Assessment, 2006,
http://trade.ec.europa.eu/doclib/docs/2006/march/tradoc_127974.pdf (accessed 03 January 2016).
48
Notably regarding the TTIP (EU-USA) and the comprehensive trade and investment agreement between the EU
and Japan.
49
European Commission, DG Trade, Handbook for Trade Sustainability Impact Assessment, 2nd edition (draft),
2015, http://trade.ec.europa.eu/doclib/docs/2015/april/tradoc_153400.pdf (accessed 03 January 2016).
50
Notably the opinion of the European Economic and Social Committee on Sustainability impact assessments (SIA)
and EU trade policy, CESE 818/2011 - REX/313, of May 2011 and the European Court of Auditors Special Report
No 2/2014, "Are Preferential Trade Arrangements appropriately managed?", 2014.
51
A public online consultation was carried out between 30 April and 14 August 2015, see
http://trade.ec.europa.eu/consultations/index.cfm?consul_id=186 (accessed 03 January 2016) .

95
SIA concerns regarding environmental impacts are downplayed, as will become apparent in the
next section of this paper. Also worrying is the fact that some Trade SIAs are published at a late
moment in time, when negotiations are almost over. In such cases, the SIA findings and SIA
recommendations can hardly steer the negotiations any more, as was the case with the EU-
Peru/Colombia Agreement discussed below. Unfortunately, delays are not something of the past.
Where current TTIP negotiations are concerned, the draft Trade SIA that should have been ready
by the end of 2014 is only expected to be published by the start of 2016. 52
It is worth noting that a system of assessing environmental impacts of trade agreements is also
employed in the USA. These assessments are called ‘Environmental Reviews’ (ER) and differ in
a number of ways from the EU Trade SIAs. Notably, they are conducted on the basis of a legal
provision, whereas the Trade SIAs are conducted on the basis of a communication and
handbook. Furthermore, they are not conducted by independent consultants but by an
interagency group chaired by the Director of Environmental Reviews of the US Trade
Representative (USTR), and they were introduced well before the SIAs, namely in 1992.
Formally, the ERs scope is limited to domestic environmental impacts, but in practice more and
more transboundary and global impacts are also taken into account. Last but not least, the US
ERs are based on a pragmatic approach where methodology is concerned rather than complicated
assessment methodologies as employed in the EU – which is notably visible when comparing the
average 50 pages long ERs with the hundreds of pages that SIAs usually encompass. 53
In the 2004 Trade SIA regarding the EU-GCC FTA (that remains to be concluded), the
consultant explained the necessity to explicitly integrate the relationship between trade, social
and environmental aspects. 54 The Commission services rejected these proposals, because of the
existence of a cooperation agreement which made them “fall outside the scope of the FTA in
areas such as social development, good governance and environment.” 55 That agreement fails to
mention sustainable development, and only expresses that the parties “shall exchange
information on developments in their respective policies on protecting the environment and the
protection and development of wildlife” and “shall encourage cooperation in these fields.” 56It is
unclear why an FTA could not form a means of such further cooperation. 57 Similar suggestions
in other SIAs were followed up on. The EU’s Trade SIAs thus form a valuable instrument but in
practice, improvements seem possible.

52
See http://www.trade-sia.com/ttip/ (accessed 03 January 2016) and answer given by Ms Malmström on behalf of
the Commission to questions from MEP Bas Eickhout of 12 June 2015, P-007211/2015,
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+WQ+P-2015-
007211+0+DOC+XML+V0//EN (accessed 03 January 2016).
53
See for more information Alf a.o. (2008).
54
PriceWaterhouseCoopers, Sustainability Impact Assessment (SIA) of the negotiations of the trade
agreement between the European Community and the Countries of the Cooperation Council for the Arab States of
the Gulf (GCC), Final Report, 30 May 2004, 208 ff,
http://trade.ec.europa.eu/doclib/docs/2005/january/tradoc_121208.pdf (accessed 03 January 2016).
55
European Commission, DG Trade, Trade SIA of the EC-GCC negotiations: position paper, 6, 20 March 2006,
http://trade.ec.europa.eu/doclib/docs/2006/march/tradoc_128076.pdf (accessed 03 January 2016).
56
EEC-GCC Cooperation Agreement was signed on 15 June 1988 and entered into force on 20 February 1989.
57
For a more extensive analysis of the sustainability aspects of the negotiations of an EU-GCC FTA, see Als (2008),
25-30.

96
4. Sustainable development in EU trade agreements

4.1 Introduction

The first EU trade agreement to refer to the concept of sustainable development was the 1993
EU-Hungary Europe Agreement. 58 Over time, references increased and the 2008 EU-
CARIFORUM agreement 59 was the first to contain an entire sustainable development chapter.
Negotiations of the latter agreement had started in April 2004. 60 Other agreements that contain
such a chapter are the 2010 EU-Korea agreement, 61 the 2012 EU-Central-America 62 and EU-
Colombia/Peru agreements, 63 the 2014 EU-Singapore 64 and EU-Canada 65 agreements. Since the
sustainable development chapters resemble each other to a large extent, the example of the Trade
Agreement between the EU and Colombia/Peru will be used to illustrate what its provisions
regulate. This agreement was chosen because EP played a specific role in its process of
negotiating and ratification, and because of the considerable challenges that exist in these
countries with regard to environmental and social aspects of increased trade, related notably to
deforestation, mining, rights of indigenous people and trade unions.

58
In the title on economic cooperation, Art. 70 set out that Hungary’s policies designed to bring about economic and
social development “should be guided by the principle of sustainable development. This entails ensuring that
environmental considerations are fully incorporated into such policies from the outset.” OJ 1993, L347, 2, http://eur-
lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.1993.347.01.0002.01.ENG (accessed 03 January 2016).
59
Official Journal of the European Union, OJ 2008, L 289/4, http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=OJ:L:2008:289:TOC, (accessed 03 January 2016).
60
See Caribean Trade Reference Centre, ‘CARIFORUM-EC Economic Partnership Agreement’ at
http://ctrc.sice.oas.org/Trade/CARIFORUM-ECEPA/CARIFORUM-ECEPA_e.asp (accessed 03 January 2016).
61
Official Journal of the European Union, OJ 2011, L 127/6, http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=OJ:L:2011:127:FULL&from=EN (accessed 03 January 2016) .
62
The EU-Central America association agreement, OJ 2012, L 346/3, http://eur-lex.europa.eu/legal-
content/EN/TXT/?qid=1445989701168&uri=CELEX:22012A1215%2801%29 (accessed 03 January 2016).
63
Trade Agreement between the European Union and its Member States, of the one part, and Colombia and Peru, of
the other part, OJ L 354, 21 December 2012, 3–2607, http://eur-lex.europa.eu/legal-
content/EN/ALL/?uri=uriserv:OJ.L_.2012.354.01.0003.01.ENG (accessed 03 January 2016). The agreement is
provisionally applied with Peru since 1 March 2013 and with Colombia since 1 August 2013. In July 2014,
negotiations with Ecuador on the accession of that country to the agreement were concluded. At a later moment,
Bolivia might also join as the last member of the Andean Community. See
http://ec.europa.eu/trade/policy/countries-and-regions/regions/andean-community/ (accessed 03 January 2016) for
the latest developments.
64
The negotiations were completed on 17 October 2014. The agreement awaits formal approval by the EC and then
agreement from the side of the Council and EP. The text of the EU – Singapore Free Trade Agreement, 29 June
2015, http://trade.ec.europa.eu/doclib/press/index.cfm?id=961 (accessed 03 January 2016) can be found on DG
Trade’s website, see notably Chapter 13, Trade and sustainable development; See also, Sukma Dwi Andrina,
Towards a future investment treaty: lessons from indirect expropriation cases due to measures to protect the
environmental and public health, 140, for an analysis of measures to protect the environment and public health from
the scope of indirect expropriation in EU – Singapore FTA and CETA.
65
Negotiations on the EU-Canada Comprehensive Economic and Trade Agreement (CETA) ended on 26 September
2014, and awaits approval by Council and European Parliament. See http://ec.europa.eu/trade/policy/countries-and-
regions/countries/canada/ (accessed 03 January 2016).

97
4.2 The negotiations, the role of EP and the Trade SIA

When the idea to launch negotiations with the Andean Community (Bolivia, Colombia, Ecuador
and Peru) came up in 2007, EP issued a recommendation on the negotiation mandate for the
envisaged Regional Association Agreement. The Council was asked to specify that an agreement
should encompass the promotion of sustainable human development, social cohesion,
democracy, the rule of law and respect for human rights without neglecting the cultural and
environmental dimension. 66 The mandate was formulated, and negotiations were launched in
June 2007. By June 2008, the talks were suspended because the Andean countries could not
agree on the objectives and scope of the trade section of the envisaged agreement. In January
2009, talks resumed between the EU, Colombia, Peru and Ecuador. In March 2010, agreement
was reached with Colombia and Peru, while Ecuador suspended its participation (though the
latter country will probably join at a later moment in time). In April 2011, after the conclusion of
the legal review, the trade agreement was initialled.
What role did the Trade SIA play in the negotiations? A consortium presented an inception
report and convened a first civil society workshop where interested parties could bring their
views forward in Brussels in January 2009. Another meeting was convened in Lima in May
2009. A draft final report with measures for avoiding, preventing or mitigating adverse impacts
of a trade agreement and enhancing beneficial ones was reviewed in mid-July 2009. In October
2009, the final report for the Trade SIA was presented 67 too late to still influence the outcome of
negotiations. 68 The Position Paper from the Commission was issued in November 2010, well
after the negotiations were already concluded. That is exceptional, as was also admitted in the
paper. 69 Instead of explaining which recommendations are accepted, it set out how these were
taken into account in the Agreement. Besides noting many social challenges, the SIA had
identified that the agreement might have potentially significant impacts in terms of deforestation
and reduced biodiversity, add pressure on land and water resources due to the EU demand for
66
EP recommendation of 15 March 2007 to the Council on the negotiating mandate for an association agreement
between the EU and its Member States, of the one part, and the Andean Community and its member countries, of the
other part (2006/2221(INI), OJ 2007, C 301E/238), http://eur-lex.europa.eu/legal-
content/EN/TXT/?qid=1446374835468&uri=CELEX:52007IP0080 (accessed 03 January 2106). In the EP
recommendation on the negotiation mandate with Central American countries, EP had also recommended to
“provide in the negotiating guidelines for the mechanisms required to ensure that the terms of the future agreement
are in perfect accordance with the EU Treaty mandate, pursuant to which the contribution to sustainable human
development, as defined in the 1996 United Nations Development Programme, promotion of international
cooperation, the development and consolidation of democracy, and respect for human rights are basic objectives of
the Union” (2006/2220(INI), OJ 2007, C 301E/233); For an overview of the role of the EP in the Common
Commercial Policy, see also Ramses A. Wessel and Tamara Takács, Constitutional Aspects of the EU’s Global
Actorness: Increased Exclusivity in Trade and Investment and the Role of the European Parliament, 17.
67
DEVELOPMENT Solutions, Centre for Economic Policy Research (CEPR) and Institute for Development Policy
and Management, University of Manchester (with support from the Foundation for Latin American Social and
Economic Research (LASO)), EU-Andean Trade Sustainability Impact Assessment, October 2009,
http://trade.ec.europa.eu/doclib/docs/2010/april/tradoc_146014.pdf (accessed 03 January 2016).
68
Alop (2011), 12.
69
Commission services position paper on the trade sustainability impact assessment (SIA) of the multiparty trade
agreement with Andean countries (Trade SIA Position Paper), Brussels, November 2010,
http://trade.ec.europa.eu/doclib/docs/2010/november/tradoc_146987.pdf (accessed 03 January 2016).

98
biofuels like ethanol and palm oil, and cause increased pollution due to mining. In response, the
Position Paper sets out that biofuels could already be exported duty free to the EU under the
GSP+, and duties on forestry products were already low. Put into this perspective, in both cases
the serious impacts that the SIA predicted due to a new agreement were downplayed as “not
likely to be significant”. 70 The SIA had also stressed the need for strengthening environmental
regulation and enforcement in Andean countries to offset potential adverse impacts of forest
conversion, mining expansion and industrial growth. The Commission agreed, but merely stated
that various mechanisms already existed that could be reinforced in order for the countries to
benefit from EU's expertise in this field, without identifying which mechanisms and
reinforcements it meant. 71 These examples show that a SIA, with its lengthy analyses of
sustainable development aspects, in practice exerts little influence if the Commission downplays
findings. In this particular case, fortunately, the EP was able to remedy the situation in part.
With the agreement on the table, EP was to provide its consent to its ratification, but some
questions remained. The Commission was asked to explain how it intended to ensure that Peru
and Colombia implement – and comply with – the standards set out in the trade agreement’s
chapter on Trade and Sustainable Development, especially as it is not subject to the agreement’s
dispute settlement mechanism. 72 Trade Commissioner De Gucht answered that the “agreement
establishes a transparent, predictable and comprehensive mechanism to ensure implementation of
core labour and environmental conventions” through an arbitration mechanism. He also pointed
at the important role for civil society organisations through advisory groups that must be
consulted regularly, and that can make recommendations. 73 EP also had noted that in certain
respects, the Agreement would mean a step backwards. 74 In a resolution, it urged the Andean
countries to establish transparent and binding roadmaps on human, environmental and labour
rights next to the agreement, aimed inter alia at safeguarding human rights, enhancing and
improving trade unionists’ rights and protecting the environment. Notably, effective enforcement
of legislation to protect the environment and biodiversity, particularly from the negative effects
of deforestation and the extraction of raw materials was to be ensured, EP underlined. 75 The idea
for such roadmaps probably stems from the USA, where the Colombian Action Plan related to
Labor Rights accompanying the U.S.-Colombia Trade Agreement had just been introduced. 76 On

70
Id., 5.
71
Id., 11.
72
Question for oral answer to the Commission by Vital Moreira, Bernd Lange, Mário David, on behalf of the
Committee on International Trade, O-000107/2012 of 27 April 2012.
73
Debate of 22 May 2012, see
http://www.europarl.europa.eu/sides/getDoc.do?type=CRE&reference=20120522&secondRef=ITEM-
014&language=EN (accessed 04 January 2016).
74
The agreement marked the exit by the two Andean countries of the GSP+ scheme that had provided them with
trade preferences in return for ensuring the effective implementation of 27 fundamental human-rights and
environmental conventions, including the ILO’s Core Labour Standards. Also see the introduction to this
contribution on the topic of GSP+.
75
European Parliament resolution of 13 June 2012 on the EU trade agreement with Colombia and Peru
(2012/2628(RSP)), OJ 2013, C 332E/52,
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.CE.2013.332.01.0052.01.ENG (accessed 04
January 2016);
76
The Colombian Action Plan related to Labor Rights of 7 April 2011,
https://ustr.gov/sites/default/files/uploads/agreements/morocco/pdfs/Colombian%20Action%20Plan%20Related%20
to%20Labor%20Rights.pdf (accessed 04 January 2016). That plan encompassed, for instance, hiring 480 new labour
inspectors over a four-year period (including at least 100 new inspectors during 2011). See for further information

99
26 October 2012 Colombia presented a Roadmap encompassing an Action Plan with ‘concrete
and measurable indicators’. 77 A Roadmap for Peru was also issued, but contrary to the
Colombian one it does not seem to be publicly accessible – which is remarkable in the light of
the explicit call for transparency by EP. Following the receipt of the roadmaps, on 11 December
2012 EP agreed to the ratification of the EU-Peru/Colombia Agreement.

4.3 Content of the Agreement

The promotion of international trade in a way that contributes to the objective of sustainable
development, and to work in order to integrate and reflect this objective in the Parties' trade
relations is one of the objectives of the agreement. 78 In the preamble, the parties expressed their
commitment to implement the Agreement “in accordance with the objective of sustainable
development, including, the promotion of economic progress, the respect for labour rights and
the protection of the environment, in accordance with the international commitments adopted by
the Parties”. A number of norms aimed at achieving these objectives are formulated, notably in a
separate title IX on trade and sustainability. 79
The Parties agree first of all to promote international trade in such a way as to contribute to the
objective of sustainable development and to work to integrate and reflect this objective in their
trade relationship, 80 notably by strengthening compliance with the labour and environmental
legislation of each Party and with the commitments deriving from certain international
conventions and agreements. 81 They recognise the sovereign right of each Party to regulate, i.e.
to establish domestic policies and priorities, to set its own protection levels, and “strive to ensure
that its relevant laws and policies provide for and encourage high levels of environmental and
labour protection.” 82 The title also includes the obligation not to encourage trade or investment
by reducing the levels of protection afforded in its environmental and labour laws. 83
Furthermore, it stresses the importance of taking into account scientific and technical
information and relevant international standards when preparing and implementing protection
measures which affect trade between the Parties, while “acknowledging that, where there are
threats of serious or irreversible damage, the lack of full scientific certainty should not be used as
a reason for postponing protective measures.” 84 Whether the EU will be able to include such a

https://ustr.gov/uscolombiatpa/labor (accessed 05 January 2016). EP referred specifically to this plan in its

resolution of 13 June 2012 (see fn 75 above).
77
For an unofficial translation into English, see http://www.oidhaco.org/uploaded/content/article/1411252187.pdf
(accessed 05 January 2016) and http://www.fta-eu-latinamerica.org/hr/a-glance-at-the-official-info/ (accessed 05
January 2016). The roadmap should also be available at http://www.colombia-
eu.org/uploads/Modules/Mediaroom/carta-y-plan-de-accion.pdf, but this website proved to be inaccessible without a
login name and password on 26 October 2015.
78
Art. 4 sub j.
79
Arts 267 – 286.
80
Art. 267(1).
81
Art. 267(2)(b).
82
Art. 268.
83
Art. 277(2).
84
Art. 278. In a footnote to this provision, it is explained that Peru interprets this Article against the background of
Principle 15 of the Rio Declaration on Environment and Development. The latter principle includes a reference to

100
provision in the TTIP agreements is doubtful, given the aversion from the side of the US against
the precautionary principle.
Important is the provision stating that no party “shall encourage trade or investment by reducing
the levels of protection afforded in its environmental and labour laws.” 85 Furthermore, a Party
“shall not to fail to effectively enforce environmental and labour laws through a sustained or
recurring course of action or inaction, in a manner affecting trade or investment between the
Parties.” 86 It is left to the reasonable discretion of the parties to allocate resources for this
purpose. 87 Where the commitment to review, monitor and assess the impact of implementing the
Agreement on labour and environment is concerned, a similar discretion is offered: this duty is to
be fulfilled as the party “deems appropriate”. 88
A provision on trade in forest products merely mentions verification mechanisms concerning the
legal origin of timber and the strengthening of control mechanisms in accordance with national
legal frameworks as options. 89 The contrast with the provision on trade in fish products is stark.
There, the Parties agree to combat illegal fishing and notably to sanction vessels that engage in
such practices, and to adopt effective monitoring and control tools “in order to ensure full
compliance with applicable conservation measures”. 90
The Agreement envisages setting up a specialised body, entitled Sub-committee on Trade and
Sustainable Development, and comprising of high-level representatives from the administrations
of each Party, responsible for labour, environmental and trade matters. 91 This body is to oversee
the implementation of the Trade and Sustainability Title. It can only adopt decisions by
consensus, which offers each party a veto right that can block any decision that it does not like.
Indeed, the work of the Sub-committee is to be “based on dialogue, effective cooperation,
furthering of commitments and initiatives under this Title and seeking mutually satisfactory
solutions to any difficulties that may arise.” 92
The substantive norms that the Agreement introduces to achieve the sustainability objectives are
formulated in such manner that it often seems hard or even impossible to prove that a party is not
meeting its obligations. If a complaint would be raised about the fact that a party is not meeting
its obligations under Title IX, it cannot be subjected to the regular Dispute Settlement of the
Agreement, as this option is excluded.93 Instead, if consultations do not bring about satisfactory
results, a Group of Experts can determine whether a party has fulfilled its obligation under the
Trade and Sustainability Title. It does so by issuing a report to which recommendations can be
added. The party concerned is to inform the Sub-committee on Trade and Sustainable
Development of its intentions as regards the recommendations of the Group of Experts, including

the principle of common but differentiated responsibilities in applying precaution, which might be the reason for this
footnote.
85
Art. 277(1). The provision adds: “Accordingly, no Party shall waive or otherwise derogate from its environmental
and labour laws in a manner that reduces the protection afforded in those laws, to encourage trade or investment.”
86
Art. 277(2).
87
Art. 279(3).
88
Art. 279.
89
Art. 273.
90
Art. 274.
91
Art. 15(1)(f) and Art. 280.
92
Art. 280(4) and (5).
93
Art. 285(5).

101
the presentation of an action plan to implement these. The Sub-committee monitors the
implementation of the measures that the party has determined. 94

5. Concluding remarks

The European Economic Community started off as an organisation that merely dealt with the
economic aspects of trade. Over time, negative side-effects of economic development occurred
which needed to be tackled by the organisation. To this end, an environmental policy was set up
and a title on environmental protection was introduced in the EEC treaty in 1987. It included an
environmental integration clause, demanding that environmental aspects needed to be integrated
in all other policy areas. The goal of sustainable development was added to the environmental
integration clause in 1993.
The integration duty was made operational through what became known as the Cardiff Process.
In 1999, the Trade Sustainability Assessment (SIA) system was introduced, an independent ex-
ante review of economic, social and environmental aspects of an envisaged trade agreement
during the negotiations. In 2001, the first EU Sustainable Development Strategy (EU SDS) was
adopted, to which an external dimension was added in 2002. The EU SDS+ added an
environmental pillar to the Lisbon Strategy on growth and jobs that appeared in 2000. Both the
Trade SIA system and the EU SDS+ were evaluated and improved over time. 95 The general
instrument of Impact Assessments (IA) was also used, notably where it concerned preparations
for the upcoming negotiations with Japan, China and the USA (TTIP).
Together, these efforts contributed to the insertion of extensive sustainable development
provisions in EU trade agreements, some twenty years after it was decided to integrate
environmental concerns in other policy areas, including trade. A trade and sustainability chapter
was first introduced in the 2008 EU-CARIFORUM Economic Partnership Agreement that was
negotiated as of 2004 and concluded in 2008. It was followed by the EU-Korea agreement, EU-
Central America and EU-Peru/Colombia agreements, and the EU-Singapore agreement. On
paper, these EU agreements finally paid attention to balancing trade and sustainable development
concerns. Unfortunately, the wording of the provisions dealing with protection of the
environment is still rather weak, and they do not provide for regular dispute settlement
procedures if a party does not live up to its obligations. As yet, it is hard to tell whether the
chapters will bring about positive sustainability effects in practice and are more than mere
‘greenwashing’. In that light, it is to be welcomed that the 2009 Lisbon Treaty provisions
explicitly stipulate that sustainable development aspects are to form a part of EU external
relations and trade and investment policies. This might form a stimulus to strengthen the
sustainable development element in future trade and investment agreements. The proposed new
EU Trade Strategy “Trade for All” forms a step in that direction by pointing at the need to start
paying attention to the issue of actual implementation of the sustainable development chapters.
This could contribute to finding out whether they are ensuring that the increases in trade and
investment between the parties have positive rather than negative sustainability impacts, and thus
whether the chapters have operative value. Further research could also focus on issues like the
94
Art. 285.
95
The Trade SIA system is in the process of being updated again at the end of 2015. The EU SDS was last updated
in 2009.

102
added value of Trade SIAs next to regular IAs, the wording of the sustainability provisions in the
agreements, the exclusion of the sustainable development chapters from regular dispute
settlement procedures, and the use of roadmaps next to trade agreements. Only by investigating
such questions can the European Union show that its trade and investment policy is really
contributing to the sustainable development of the Earth and of its trade partners.

103
Promoting Renewable Energy in the EU: Shifting Trends in Member State
Policy Space

Daniel Behn, 1 Ole Kristian Fauchald 2 and Laura Létourneau-Tremblay 3

1. Introduction

Member States of the European Union (EU) have sought to promote renewable energy
generation as a means of meeting international and regional (EU) obligations to mitigate climate
change; and it is now some of these very policy initiatives that are coming under attack when
they might conflict with a Member State’s other international and EU obligations, such as in the
areas of international trade, foreign investment protection, and the functioning of the internal
energy market. Member States of the EU are under cross-fire in regard to how they promote and
incentivize renewable energy. Member States are increasingly challenged by other Member
States, EU institutions – especially the European Commission (Commission) and the Court of
Justice of the European Union (CJEU), and investment treaty arbitration tribunals.

In implementing national policies on the promotion of renewable energy generation, all Member
States have the goal of achieving national binding targets mandated under the 2009 Renewable
Energy Directive (2009 Directive). 4 While these targets are binding, the means by which a
Member State achieves the targets are flexible, uncoordinated, and relatively isolated from an
EU-wide policy. Given some of the problems in implementing a renewable energy promotion
policy at the EU level, the Commission is currently working to correct what it sees as problems
that have risen in regard to the autonomous development of renewable energy policies at the
Member State level. Of primary importance is the design of support schemes. These have
demonstrated important successes, but have also evidenced a number of policy failures.

As will be further explored, Member State support schemes for the incentivization of renewable
energy have led to market distortions, state aid investigations, and exposure to potential
responsibility under international investment agreements (IIAs). These issues have highlighted a
need for greater policy coordination between the EU and its Member States. For the
Commission, a ‘Europeanization’ of support schemes is needed to achieve the policy goals that
are about to be set at the EU level on the promotion of renewable energy.

To address many of these issues, the Commission has been active in: 1) modifying the approach
to the promotion of renewable energy generation; 2) modifying the approach to state aid; 3)
criticizing some Member State policies on over-incentivization (and subsequent revocation of
support); 4) challenging Member State refusal to subsidize non-national producers; and 5)
1
Postdoctoral Researcher, PluriCourts, Faculty of Law, University of Oslo.
2
Professor of Law, PluriCourts, Faculty of Law, University of Oslo.
3
Researcher , PluriCourts, Faculty of Law, University of Oslo.
4
European Parliament and the Council, Directive 2009/28/EC of 23 April 2009 on the promotion of the use of
energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC,
OJ L 140, (05 June 2009), http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:32009L0028 (accessed 15
January 2016).

104
attacking the validity of intra-EU IIAs and the enforcement of arbitral awards based on intra-EU
IIAs. But EU institutions are also concerned about the principle of subsidiarity and the need to
allow Member States flexibility in designing national policies to promote renewable energy. In
looking at these issues, this article will examine the historical progression of EU laws and
policies concerning the promotion of renewable energy generation, identify many of the factors
inhibiting or challenging the achievement of EU renewable energy policy goals (highlighted
above), and consider whether the proposed shifts in renewable energy promotion policy are
likely to be effective in addressing these challenges while allowing sufficient policy space to
Member States.

2. Shifting trends in EU policies on the promotion of renewable energy

Promoting the production of renewable energy has been a high priority for the EU since the
1990s. 5 In its 1997 White Paper, the Commission set a community strategy and action plan for
renewable energy emphasizing the importance of promoting and further developing the
renewable energy sector in the EU. 6 Flowing from this White Paper, the first Directive on the
promotion of electricity produced from renewable energy sources (2001 Directive) was adopted. 7
This Directive set a target of a twelve percent share of renewable energy in the overall energy
consumption of the EU by 2010. 8 To achieve this target, Member States were given non-binding
national targets. 9 In addition, the 2001 Directive introduced support schemes and guarantees of
origin aiming at supporting the achievement of the target. Considering the limited experience
with support schemes at that time, the 2001 Directive did not include a harmonized support
mechanism but simply required the Commission to monitor the developments and report on the
experience gained with the implementation of support schemes. 10

In 2007, the Commission presented its Renewable Energy Roadmap highlighting the failure to
achieve the agreed target in renewable energy due to ‘a policy failure and a result of the inability
or the unwillingness to back political declarations by political and economic incentives’. 11 As a
way forward, the Commission proposed the adoption of a binding target and increasing the
overall level of renewable energy from final energy consumption to twenty percent by 2020.
Following the Commission proposal, a new Directive on renewable energy was adopted in

5
For further details, see Angus Johnston and Guy Block, EU Energy Law (Oxford University Press 2012).
6
European Commission, Energy for the future: renewable sources of energy – White paper for a Community
strategy and action plan, COM(97)599, (26 November 1999),
http://europa.eu/documents/comm/white_papers/pdf/com97_599_en.pdf (accessed 15 January 2016).
7
European Parliament and the Council, Directive 2001/77/EC of 27 September 2001 on the promotion of electricity
produced from renewable energy sources in the internal electricity market, OJ L 283, (27 October 2001), http://eur-
lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32001L0077, (accessed 15 January 2016).
8
Ibid., Art. 3(4).
9
Ibid., Art. 3.
10
Ibid., Art. 4; see also CJEU Case C-66/13, Green Network SpA, §§ 51-55 (2014); and Case C-195/12, IBV & Cie,
§§ 63-65 (2013).
11
European Commission, Communication to the Council and the European Parliament, Renewable energy road map
– Renewable energies in the 21st century: building a more sustainable future, COM(2006) 848, 8, (10 January
2007), http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:52006DC0848 (accessed 15 January 2016).

105
2009. 12 This Directive introduced a common framework with national binding targets calculated
on the basis of the 2005 share of renewable energy in each Member State. 13 According to the
2009 Directive, Member States were allocated binding targets set at the EU level and aimed at
meeting the EU-wide goal of achieving twenty percent of its total energy consumption from
renewable sources by 2020. In setting these binding targets, the EU was purposefully silent (for
the most part) on mandating the ways and means that these renewable targets would be met by
each Member State. This policy is consistent with the EU’s subsidiarity principle and gives
Member States a great degree of flexibility in designing their renewable energy promotion
policies 14. The binding nature of the renewable energy targets stipulated in the 2009 Directive
has also led to a considerable increase in investment in green electricity in the EU. 15

Due in 2010, the Directive required each Member State to submit a National Renewable Energy
Action Plan to the Commission showing how they intended to achieve their binding national
targets. 16 These plans allow Member States the flexibility to decide how they will achieve their
targets and foster the necessary stability for investors. A reporting system ensuring the
monitoring of the progress was also established. 17 The 2009 Directive encourages cooperation
through cross-border projects, support schemes and statistical transfer of energy from renewable
sources between Member States. 18 The 2009 Directive reformed the system of guarantees of
origin introduced by the 2001 Directive. The guarantees of origins were standardized and
considered as a tradable good. 19
Much has been achieved with regards to the targets set for development of the renewable energy
sector since the adoption of the 2009 Directive 20; but the EU has now started to look beyond
2020. In early 2014, the Commission published its 2030 Climate and Energy Policy Framework
(2030 Policy Framework), which sets out new energy and climate objectives in the period from
2020 to 2030. 21 The 2030 Policy Framework sets an EU target of at least twenty-seven percent
of total energy consumption from renewable sources by 2030. This will be a binding target at the
EU level which will not be translated into binding targets at the national level. This move away

12
European Parliament and the Council, Directive 2009/28/EC.
13
Ibid., Art. 3(1); Annex I, Part A.
14
Marjan Peeters, Governing Towards Renewable Energy in the EU: Competences, Instruments, and Procedures,
21 Maastricht Journal of European and Comparative Law 1, 49-50 (2014).
15
Kim Talus, Renewable Energy Disputes in the Europe and beyond: An Overview of Current Cases, OGEL 3, 4
(2015).
16
European Parliament and the Council, Directive 2009/28/EC, Art. 4.
17
Ibid., Art. 22.
18
Ibid., Arts. 6-11.
19
Ibid., Art. 15.
20
European Commission, Renewable Energy Progress Report, COM(2015) 293 Final, (15 June 2015).
21
The 2030 Policy Framework was endorsed by the European Council on 24 October 2014; see European Council,
Conclusions, EUCO 169/14, (24 October 2014),
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/145397.pdf (accessed 15 January 2016). In
July 2015, the Commission started the legislative process necessary to implement post-2020 commitments into EU
law: see European Parliament, Post-2020 Reform of the EU Emissions Trading System, Briefing: EU Legislation in
Progress, (18 September 2015),
http://www.europarl.europa.eu/RegData/etudes/BRIE/2015/568334/EPRS_BRI%282015%29568334_EN.pdf
(accessed 15 January 2016)

106
from binding national targets has been criticized by certain members of the European Parliament
as ‘short-sighted’ and ‘unambitious’. 22 According to the Commission and the European Council
(Council), however, an EU-wide binding target will continue to allow Member States the
flexibility to design their renewable energy policies in a manner specific to their circumstances,
while at the same time strengthening regional cooperation between Member States and assist the
EU in moving closer to a single energy market. 23 With this common approach, the EU aims at
ensuring stronger investment stability, greater transparency, coherence and coordination across
the EU. 24 This position was also endorsed by Advocate General (AG) Bot in Green Network: a
CJEU case concerning the obligation to purchase green certificates on energy produced outside
the EU. AG Bot stated that the EU’s new policy towards renewable energy will allow for ‘a new
more collective, coherent and coordinated approach to the promotion of green energy’. 25
By adopting an EU-level binding target, the Commission aims at stimulating the development of
renewable energy at the EU level while still giving Member States sufficient flexibility in the
design and implementation of their renewable energy policies. However, a primary driver in the
EU’s recent shift in renewable energy policy appears aimed at facilitating the ‘Europeanization’
of support schemes and in decreasing barriers preventing the completion of the internal energy
market. The Commission has also emphasized that new renewable energy promotion plans of
Member States must take into account ‘the need to comply with competition and State aid rules
to avoid market distortions and ensure cost-effectiveness’. 26 Hence, while the new approach
provides Member States flexibility in fixing their targets, it may at the same time reduce their
flexibility to decide how they support the development of renewable energy within their
borders. 27 According to the Commission, technology neutrality and equal treatment of all
renewables without sector specific targets or support schemes across the EU could improve short
to medium term cost-effectiveness. 28 The Commission has emphasized that the 2030 Policy
Framework is focused, inter alia, on strengthening regional cooperation, the further integration of
the internal energy market, and undistorted competition. 29 To ensure the monitoring of an EU-
wide target, the Commission has proposed a transparent governance system that will assess
national plans with the aim of enhancing predictability for investors and fostering regional

22
See EurActiv, Parliament backs strong EU stance on 2030 clean energy goals,
http://www.euractiv.com/energy/meps-confirm-ambitious-stance-20-news-533298 (accessed 15 January 2016).
23
European Commission, Communication from the Commission to the European Parliament, the Council, the
European Economic and Social Committee and the Committee of the Regions, A policy framework for climate and
energy in the period from 2020 to 2030, COM(2014) 15, 3, (22 January 2014), http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52014DC0015&from=EN (accessed 15 January 2016).
24
Ibid., 6; see also European Commission, 2030 energy strategy, http://ec.europa.eu/energy/en/topics/energy-
strategy/2030-energy-strategy (accessed 15 January 2016).
25
Opinion of AG Bot, Case C-66/13, Green Network SpA, § 63 (2014).
26
European Commission, A policy framework for climate and energy, 6-7.
27
Marjan Peeters and Thomas Schomerus, ‘Regional Renewable Energy: A string of Legal and Financial
Challenges’, in Marjan Peeters and Thomas Schomerus (eds.), Renewable Energy Law in the EU: Legal
Perspectives on Bottom-up Approaches, 284 (Edward Elgar 2014).
28
European Commission, Commission Staff Working Document, Executive summary of the impact assessment,
SWD(2014) 16 final, 2, 13-14 (22 January 2014), http://ec.europa.eu/smart-
regulation/impact/ia_carried_out/docs/ia_2014/swd_2014_0016_en.pdf (accessed 15 January 2016).
29
European Commission, A policy framework for climate and energy, 3.

107
cooperation between Member States. 30 While the drive to liberalize and integrate renewable
energy markets in the EU has been historically left to the Member States to implement; however,
the 2030 Policy Framework signals a significant shift towards a more centralized coordination of
policies by the Commission. 31
However, it remains unclear to what extent this system will guarantee compliance with the new
EU binding renewable energy target. Of critical importance in this regard so far has been the
support schemes that have been designed for the promotion of renewable energy. For many
Member States, the primary mode of support is coming through feed-in tariff (FITs), feed-in
premium (FIPs) or green certificate programs. While these support schemes have worked in
many Member States (e.g. Germany), they have, as we shall see, given rise to a number of
problematic situations in many others (e.g. Spain, the Czech Republic and Italy). While the 2009
Directive provided Member States considerable latitude in the design and (mis)management of
their support schemes, the EU now appears to be charting a new course that would combine a
stricter regulatory framework and associated monitoring of national support schemes at the EU
level, and a move from binding targets at the Member State level to binding EU-wide targets in
the next target period (2020-2030).

3. The need for change – case studies on feed-in tariffs

One of the primarily catalysts for the recent proposed shifts in the renewable energy policies of
the EU has been the practice of support schemes for the promotion of renewable energy in a key
number of Member States. These Member States over-incentivized their renewable energy
support schemes initially and have had to withdraw or revoke much of the support for renewable
energy investment that was originally on offer. While a large number of Member States have had
to modify their support schemes in recent years, three particular Member States stand out for
having to make drastic reforms to their renewable energy support schemes; and which have now
led to a significant number of international disputes.

These Member States – Spain, the Czech Republic and Italy – all over-incentivized their
renewable sector in the mid- to late 2000s, and have had to make drastic adjustments in the past
few years. These modifications to their support schemes have resulted in investment treaty
arbitrations being filed against them. In the following section, we have chosen to provide case
studies on these three Member States because they are the only EU Member States to date that
have become subject to investment treaty arbitrations as a direct result of the (mis)management
of their renewable energy support policies. However, with that said, the modification of support
schemes for renewable energy has occurred in a large number of Member States; and may lead to
the initiation of investment treaty arbitrations in the future. For example, Romania, Bulgaria,
Slovakia, Latvia, Greece, Belgium, the United Kingdom and France have all made significant
modifications to their support schemes in recent years. 32
30
Ibid., 12-13; European Council, Conclusions (24 October 2014), 9.
31
Kim Talus, EU Energy Law and Policy: A Critical Account, 286 (Oxford University Press 2013).
32
For more details, see ‘Status Review of Renewable and Energy Efficiency Support Schemes in Europe in 2012
and 2013’, CEER (2015). Bulgaria recently applied a ‘temporary’ thirty-nine percent grid access tax on all PV solar
producers benefiting from the state’s FIT scheme. PV Magazine, Bulgarian PV industry protests limits on renewable
energy production, (4 July 2013), http://www.pv-magazine.com/news/details/beitrag/bulgarian-pv-industry-protests-

108
As noted above, the 2009 Directive and the 2030 Policy Framework focus on the consumption of
energy within each Member State and the European level. The most important means to achieve
the targets on renewable energy have been the establishment of support schemes, such as FITs,
FIPs, and green certificates. These measures are focused on different elements in the process of
production, distribution and consumption of energy. As a very general starting point, support
schemes that are targeted at producers or the transactions between producers and distributors
(generally referred to as transmission system operators (TSOs) or distribution system operators
(DSOs)) 33 are likely to raise crucial issues regarding distortive market effects and ‘leakage’ (i.e.
support schemes being enjoyed by foreign producers or consumers). Support schemes that are
targeted at consumers or the transactions between TSOs/DSOs and consumers, on the other
hand, are less likely to have such effects. Our preliminary study indicates that FITs and FIPs are
focused on the transactions between electricity producers and TSOs/DSOs, while green
certificates 34 can tend to focus on the relationship between TSOs/DSOs and consumers. For this
reason and due to the extensive resort to FITs, we have chosen to focus on FITs in our case
studies.

In the European context, Germany’s FIT program dates back to the 1990s, and was followed by a
number of other FIT and FIP programs in the early 2000s. A FIT program aims at offsetting the
higher cost of renewables technologies in relation to fossil fuels, and provides a stable all-
inclusive price for electricity generated from renewable sources. 35 A FIP (also called a green
bonus) on the other hand is paid in addition to the market price. A FIP is considered to be more
market-friendly than the FIT because the producer is exposed to market price risk. While each of
these programs is specific to the EU Member State, they have a number of similar design
features: 1) they provide an additional price (i.e. above the market price for electricity) paid for
electricity produced from renewable energy sources; 2) the additional price is only paid on
electricity actually ‘fed-in’ to the grid (i.e. submitted to the TSO/DSO); 3) tariffs are often
differentiated according to characteristics of the production facility (i.e. its size, geographical

limits-on-renewable-energy-production-updated_100011921/#axzz3lf2lii19 (accessed 15 January 2016). Greece,

Romania, Belgium, Slovakia and France have also recently applied retrospective taxes or access fees onto existing
and future PV solar producers benefiting under previous FIT schemes. EPIA, Retrospective measures at the national
level and their impact on the photovoltaic sector, (10 December 2013),
http://www.photon.info/newsletter/document/83019.pdf (accessed 15 January 2016).
33
European Parliament and the Council, Directive 2009/28/EC, Art. 2(4), Art. 2(6): ‘transmission system operator’
means a natural or legal person responsible for operating, ensuring the maintenance of and, if necessary, developing
the transmission system in a given area and, where applicable, its interconnections with other systems, and for
ensuring the long-term ability of the system to meet reasonable demands for the transmission of electricity;
‘distribution system operator’ means a natural or legal person responsible for operating, ensuring the maintenance of
and, if necessary, developing the distribution system in a given area and, where applicable, its interconnections with
other systems and for ensuring the long-term ability of the system to meet reasonable demands for the distribution of
electricity.
34
There exists a wide variety of schemes that can be labelled ‘green certificates’. While some target producers
requiring them to submit an amount of green certificates depending on their overall level of production, other
schemes target TSOs/DSOs and require them to submit an amount of green certificates based on the amount of
energy they transfer to consumers.
35
It can also be discussed whether FITs may distinguish between different kinds of renewable energy, i.e. between
well-established sources such as hydro-power and emerging sources such as wave or tidal energy.

109
location and energy source); 4) the tariff is guaranteed for a certain period of time, normally
fifteen to twenty-five years; 5) the tariff price is set to digress over time; and 6) FIT and FIP
schemes have increasingly been using local content requirements for the production equipment,
providing a bonus payment to those facilities that source a certain percentage of their equipment
from within the EU. 36
While there are a number of similarities among different FIT and FIP programs in the EU, there
is one key difference that appears to be a key determinant in whether a particular program has
been considered a success or not: the extent to which the programs over-incentivized certain
types of renewable technologies (in other words: under-estimated the amount of new investment
that the support scheme would produce). This is a phenomenon that has been present for
producers of electricity using solar energy (especially in the photovoltaic (PV) solar sector). Our
case studies therefore focus on this PV solar sector in three select states which have all made
major revisions to their renewable support schemes recently: Spain, the Czech Republic and
Italy.

Spain

Already in the 1980 the Spanish government encouraged the use of renewable energies. 37 Spain
introduced more specific measures to promote renewable energy in 2004. 38 These measures
offered investors either a fixed price FIT or a FIP. The FIT amounted to approximately thirty-
two Eurocents per kilowatt/hour (kWh) for electricity produced from PV solar, 39 and it was
guaranteed for a period of twenty-five years after which it would be reduced by approximately
twenty percent (for years twenty-six through forty). Under the legislation, the DSO was required
to bear the cost of the FIT. These additional costs exceeded the regulated price that could be
charged to consumers, resulting in a multi-billion Euro debt held by the state (called an
‘electricity deficit’). 40 In 2005, Spain enacted a renewable energy plan in accordance with the
2001 Directive. According to this plan, Spain set a target of achieving twelve percent of its total

36
Member states with local content requirements as a component part of their support schemes include France, Italy,
Greece, and Croatia. These local content requirements generally provide a bonus payment (on top of the FIT or FIP
rate) for equipment sourced within the EU.
37
For further details, see Iñigo del Guayo, ‘Promotion of Renewable Energy Sources by Regions: The Case of the
Spanish Autonomous Communities’, in Marjan Peeters & Thomas Schomerus (eds.), Renewable Energy Law in the
EU: Legal Perspectives on Bottom-up Approaches, 54 (Edward Elgar 2014).
38
Royal decree 436/2004 establishing the methodology for the updating and systematisation of the legal and
economic regime for electric power production in the special regime, 8 Legislation Development of the Spanish
Electric Power Act, Published in the Official State Journal, B.O.E., Issue 75 (27 March 2004), http://www.area-
net.org/fileadmin/user_upload/PACT/Laws/Spain_436_2004_english.pdf (accessed 15 January 2016).
39
The FIP for PV solar amounted to about ten percent less than the FIT.
40
Under the original plan, the amount of PV solar installed would be small enough that the additional costs could
largely be absorbed by the DSO. However, the surge in the installation made it impossible to absorb the additional
costs and it was at this point that the electricity deficit expanded significantly. The deficit is in excess of thirty
billion Euro (and continues to grow). See also David Robinson, Pulling the Plug on Renewable Power in Spain,
Oxford Energy Comment, Oxford Institute for Energy Studies, (2013) http://www.oxfordenergy.org/wpcms/wp-
content/uploads/2013/12/Pulling-the-Plug-on-Renewable-Power-in-Spain.pdf (accessed 15 January 2016).

110
energy consumed from renewable sources by 2010. Spain’s share of electricity consumed from
renewable sources was 8.3 percent in 2005 and reached 13.8 percent by 2010.
In May of 2007, Spain updated its program by increasing the tariff to approximately forty-six
Eurocents/kWh. 41 This amendment created a cap on the amount of PV solar that could be
installed. Once the cap was reached, regulators could adjust the FIT. While Spain had set a goal
of installing 400 megawatts (MW) of PV solar by 2010, this was reached in early 2007; and by
2010, nearly 4000 MW had been installed. 42

Table 1: Annual Installed PV Solar in Spain in MWh

3000
2687,2

2000

1000
590,8
371,2 431,9
227,8
60,5 17,1 102,4 22
0
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

By late 2007, Spanish regulators knew that the deployment of PV solar installations was
occurring so rapidly as to reach its targets three years ahead of schedule. When the Spanish
legislature responded in September 2008, there had already been a dramatic surge in the amount
of PV solar installed. The legislation modified the method for allocating FIT contracts and
reduced the FIT in 2008. 43 As follows from Table 1 above, these changes provided significant
disincentive for future PV solar installations. 44 Spain continued to modify the support scheme
during 2010: 1) the FIT was reduced by forty-five percent and the FIT after twenty-five years
was withdrawn; 45 2) FIT contracts (including existing ones) were modified by limiting the
number of hours that PV solar installations could operate and a grid access fee of approximately

41
National Energy Regulatory Commission, 11 Legislation Development of the Spanish Electric Power Act, Royal
decree 661/2007 regulating the activity of electricity production under the special regime, BOE 126, 73 (26 May
2007), http://bit.ly/1O9w2UR (accessed 15 January 2016).
42
Francisco Montoya, María Aguilera and Francisco Manzano-Agugliaro, Renewable energy production in Spain: A
review, 33 Renewable and Sustainable Energy Review, 513-515 (2014).
43
Royal decree 1578/2008 (26 September 2008).
44
The changes reduced the net amount of installed PV solar in 2009 to about zero, before the installation picked up
again in 2010.
45
Royal decree law 1565/2010 (23 November 2010).

111
two Eurocents/kWh on electricity from PV solar installations was introduced. 46 These changes
reduced expected revenue from PV solar projects by about thirty percent. 47
In 2011, Spain submitted another renewable energy plan as mandated by the 2009 Directive by
which it agreed to achieving twenty percent of its total energy consumption from renewable
sources by 2020. 48 While PV solar continues to be a part of the renewable energy mix that will
assist in Spain’s achievement of its renewable energy targets, it remains only a small percentage
of Spain’s overall electricity consumption (3.2 percent in 2012).
To address the ‘electricity deficit’, legislation was passed in 2012 that placed a moratorium on
the registration of new PV solar projects for an indefinite period, and that imposed an open-
ended seven percent tax on all electricity generators from 2013. 49 In early 2013, the changes
continued with legislation that terminated the FIT support scheme for all new renewable energy
installations from 2014. 50
New legislation passed in 2013 and 2014 requires that FIT rates on future projects be based on
an internal rate of return between five and 5.5 percent after taxes. 51 This change means that any
projects that were financed at a rate higher than five percent are likely to be unprofitable. The
government originally envisioned support to PV solar projects to provide an internal rate of
return of approximately seven percent, which would permit a ‘reasonable rentability’ on
projects. 52 The internal rate of return on many projects prior to the series of legislative changes
between 2008 and 2012 was between ten and fifteen percent. 53
The PV solar sector in Spain has obviously experienced what can be considered a boom followed
by a bust; and this bust has resulted in a number of lawsuits. At the national level, there have
been at least fifty cases decided before the Spanish Supreme Court, all of which have been
rejected. 54 However, this is only the tip of the iceberg in that as many as 630 000 appeals could
be brought in the Spanish courts as a result of the modifications made to legislation. 55 At the
European level, complaints have been brought to the Commission by those who have invested in

46
Royal decree law 14/2010 (23 December 2010). While the increasing electricity deficit has been exasperated by
the generous FIT program for PV solar, the electricity deficit in Spain has been a general problem for a long time
and is tied to all sources of electricity.
47
Pablo del Rio and Pere Mir-Artiques, A Cautionary Tale: Spain’s Solar PV Investment Bubble, Global Subsidies
Initiative, 22 (2014), https://www.iisd.org/gsi/sites/default/files/rens_ct_spain.pdf (accessed 15 January 2016).
48
Ministry of Industry and Tourism, Spain’s National Renewable Energy Action Plan 2011-2020, 43 (30 June 2010),
http://ec.europa.eu/energy/renewables/action_plan_en.htm (accessed 15 January 2016).
49
Royal decree law 1/2012 (27 January 2012).
50
Royal decree law 2/2013 (1 February 2013).
51
Royal decree law 9/2013 (12 July 2013); Royal decree 413/2014 (6 June 2014).
52
For a definition of ‘reasonable rentability’ as defined in Art. 19 of Royal decree 413/2014, Electricity Promotion
in Spain, SRES Legal (7 July 2014).
53
del Rio and Mir-Artiques, A Cautionary Tale, 12.
54
See http://www.poderjudicial.es/search/index.jsp, search terms: ley 14/2010, ley 1565/2010 (accessed 15 January
2016).
55
Renewable Energy Magazine, Spanish Congress Approves Royal Decree Described as “The Photovoltaic
Sector’s Ruin” (28 February 2011), http://www.renewableenergymagazine.com/article/spanish-congress-approves-
royal-decree-described-as (accessed 15 January 2016).

112
the PV sector in Spain, including a complaint brought by a group of 1500 investors requesting an
investigation into the changes made by Spain and their consistency with EU law. 56

Czech Republic

The FIT program established in the Czech Republic in 2002 only resulted in a few renewable
energy projects as the FIT rates were too low. 57 In 2005, the Renewable Energy Support Act
(Act) 58 introduced a guarantee requiring TSOs/DSOs to purchase all electricity generated from
renewable sources for a period of fifteen years, and set up a mechanism whereby producers can
choose between a FIT and a FIP. The Act also authorized a regulator to set FIT rates for each
year that could not be reduced by more than five percent of the previous years’ rates, and were to
be differentiated by type of renewable source and by year of commissioning. This legislation
significantly increased the tariff available for PV solar installations, reduced the discretion of the
energy regulator in adjusting prices, and offered long-term contracts guaranteeing the payment of
all electricity produced from PV solar.
There was a drastic increase in PV solar installations after 2008, indicating that the renewable
support scheme was working 59. The increase created problems related to the potential costs of
the support scheme over the long-term and a high risk of instability to the electricity grid. 60 This
led to a number of reforms and amendments to the Act aimed at reducing the FIT and to claw-
back some of the extraordinary profits that were being generated by those PV solar installations
that came online before 2011: 1) the introduction of a moratorium on connecting new PV solar
installations to the grid in 2011; 61 2) the FIT support for large PV solar installations would be
terminated from 1 March 2011; 62 3) a tax holiday granted to producers of electricity from
renewable sources was removed; 63 4) a gift tax was placed on carbon credits for 2011 and 2012
and a tax of twenty-eight percent on PV solar installations built in 2009 and 2010 that receive the
FIT (twenty-six percent on the FIP) was to apply from 2011 through 2013; 64 5) a new regulation

56
John Parnell, Fight against Spain’s Solar Cuts taken to Brussels, PV Tech (23 June 2014), http://www.pv-
tech.org/news/spanish_solar_cuts_case_taken_to_european_commission (accessed 15 January 2016).
57
Ministry of Industry and Trade notice 252/2001 coll.
58
Act 180/2005 coll., Act on the promotion of electricity production from renewable energy sources and amending
certain acts (Act on Promotion of Use of Renewable Sources) (31 March 2005),
http://www.czrea.org/files/pdf_en/zakony/RES_act_english.pdf (accessed 15 January 2016).
59
‘Energy Policies of IEA Countries: The Czech Republic 2010 Review,’ IEA, 85, 2010, https://www.iea.org/
publications/freepublications/publication/CzechRep2010_free.pdf (accessed 15 January 2016).
60
Solar plaza, Photovoltaic in the Czech Republic: Status Update (29 March 2011),
http://www.solarplaza.com/channels/archive/11243/photovoltaic-in-the-czech-republic-status-update/ (accessed 14
September 2014); see also Luigi Dusonchet and Enrico Telaretti, Economic analysis of different supporting policies
for the production of electrical energy by solar photovoltaics in eastern European Union countries, 38 Energy
Policy, 4013-4014 (2010).
61
Act 180/2005 coll. amendment of 1 April 2010. On 16 February 2010, the Czech Republic TSO banned the
connection of all new PV solar plants to the grid until the end of 2011.
62
Act 180/2005 coll. amendment, (3 November 2010).
63
Act 586/1992 coll. amendment, (12 November 2010).
64
Act 180/2005 coll. amendment, (14 November 2010).

113
permitted the regulator to reduce the annual FIT and FIP for PV solar installations by more than
the previously limited five percent; 65 and 6) legislation was passed to extend the PV solar tax
with an open-ended ten percent tax on all electricity generated and to terminate all renewable
energy support schemes for new installations from 2014. 66

Table 2: Annual Installed PV Solar in the Czech Republic in MWh

1600 1495,8

1200

800

408,6
400

109,1 110,3
4,7 49,2 2
0,1 0,3 0
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

As of 15 January 2016, the regime governing the PV solar sector has become somewhat
fragmented with different support schemes governing projects brought online at different times.
Like the Spanish situation, this fragmentation and uncertainty has led to a number of lawsuits. At
the national level, a case was filed at the Czech Constitutional Court claiming that the PV solar
tax was discriminatory and violated the Constitution. In a decision rendered on 15 May 2012, the
court upheld the PV solar tax and determined that legal certainty was not an absolute right
immune from socio-economic changes. 67

Italy

The 2001 and 2009 Directives prompted the creation of the Italian legal framework for support
to renewable energy sources. 68 The promotion of PV solar began in 2005 following the
enactment of renewable energy promotion regulations (the first conto energia). PV solar was
promoted through green certificates with a monetary value in excess of the market price for

65
Regulation 2/2010, 18 November 2010. The FIT rates were forty-seven to fifty-five Eurocents/kWh for the years
2007 to 2010, and fell to between eight and twenty-one Eurocents/kWh for 2011 to 2013.
66
CEER, Status Review of Renewable and Energy Efficiency Support Schemes, 19.
67
Czech Republic Constitutional Court Judgment, Photovoltaic Power Plants, Pl. US 17/11, (15 May 2012).
68
Legislative Decree no. 387/03; for further details, see Saverio Massari, The Italian Photovoltaic Sector in two
Practical cases: How to Create an Unfavorable Investment Climate in Renewables, OGEL 3 (2015).

114
electricity. 69 For PV solar installations, the green certificates amounted to approximately forty-
five Eurocent/kWh and were granted to producers 70 under twenty year contracts. These
certificates were consequently comparable to FIPs. In two subsequent conto energias, the Italian
legislature adjusted various parts of the green certificate scheme. 71

Table 3: Annual Installed PV Solar in Italy in MWh

10000 9303

8000

6000

4000 3369
2326
2000 1462 1389
698
70 338
2 12,5
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

The fourth conto energia significantly changed the structure of renewable support schemes by
switching to a fixed price FIT or FIP. 72 By the time the fourth conto energia came into force,
Italy had installed over 10 000 MW of PV solar. The dramatic increase in 2010 and 2011 put
significant strain on the system. The fourth conto energia aimed at phasing out the green
certificate program by 2015 and to implement FIT and FIP rates that could be ‘progressively
reduced over time, in order to balance the level of public support with the costs of technologies,
giving stability and certainty to the market’. 73 By the end of 2011, the support offered under the
fourth conto energia had declined by thirty-one percent compared to the rates offered under the
second conto energia. 74 In 2012, the fifth conto energia modified the support scheme for PV for
the fourth time in six years. 75 The purpose was essentially to terminate the support scheme for
utility scale PV solar installations and to put a new cap on annual spending. 76

69
Ministerial decree, (28 July 2005).
70
See Gestore Servizi Energetici (GSE), Green certificates,
http://www.gse.it/en/qualificationandcertificates/Pages/default.aspx (accessed 15 January 2016).
71
Ministerial decree, (19 February 2007); Ministerial decree, (6 August 2010).
72
Ministerial decree, (5 May 2011).
73
‘Fourth feed-in-scheme’, GSE, http://www.gse.it/en/feedintariff/Photovoltaic/Fourth%20feed-in%20tariff/
Pages/default.aspx (accessed 15 January 2016).
74
del Rio & Mir-Artiques, A Cautionary Tale , 58.
75
Ministerial decree, (5 July 2012).
76
Gestore Servizi Energetici (GSE), ‘Fifth feed-in-scheme’,
http://www.gse.it/en/feedintariff/Photovoltaic/FifthFeed-inScheme/Pages/default.aspx (accessed 15 January 2016).

115
The support scheme for PV solar in Italy comes directly out of the state coffers. This is distinct
from the approach taken in Spain and the Czech Republic where PV solar support is paid by the
TSO/DSO and the additional cost (at least partly) is passed onto the customer. The fifth conto
energia sets a cap for total support at 6.7 billion Euro per year. In 2013, the cap was reached in
June. 77 Given that the majority of twenty year support contracts for green certificates date from
about 2010, the available support has already been spent through approximately 2030. The result
is that very few new PV solar installations will receive any support. The fifth conto added a
controversial local content bonus of two Eurocents/kWh that is available to PV solar producers if
a certain percentage of the solar panels are sourced from within the EU. 78 In mid-2014, the
Italian legislature intervened on an emergency basis. 79 This latest intervention reduces all
previous support price guarantees for PV solar by seventeen to twenty-five percent with effect
from 1 January 2015.

Concluding remarks

These case studies were chosen because of the problems that occurred in implementing support
schemes for the promotion of renewable energy among EU Member States. There are two major
sets of conditions that the three case study states failed to anticipate: one is external and one is
internal. The external conditions are the global financial recession and the unanticipated decline
in the cost of solar panels. These changes restricted the amount of financial support that could be
allocated for the promotion of renewable technologies when approaching 2010, and the decline
in the price of PV solar panels meant that there would be a surge of investment in the sector due
to the windfall profits that high tariffs and low production costs would generate.
While the external conditions were unanticipated, the internal condition was highly predictable
and could have largely been avoided. In all three of the case studies, but to varying degrees, the
regulatory structure established to implement the support schemes for PV solar were inflexible
and unable to quickly respond to changing market conditions. In all three cases, PV solar was
over-incentivized initially. By the time that regulators and legislators realized that the FITs and
FIPs were unsustainable, it was too late and drastic emergency-type measures were required to
control new investment in the sector. Such measures have reduced future subsidies and clawed
back some of the ‘wind-fall profit’ of investors, and they have resulted in very significant
reduction in the establishment of PV solar production capacity. The latter is remarkable since the
falling costs of PV solar should rather have led to an increase in installed capacity.
The measures taken by the States have drawn criticism from the Commission. In its 2013 report
on progress under the 2009 Directive, it stated that:

77
Carsten Steinhauer and Riccardo Narducci, ‘Italy: Euro 6.7 Billion Cap for Photovoltaic Incentives Reached’,
Energy Business Law (7 June 2013), http://www.energybusinesslaw.com/2013/06/articles/eu-developments/italy-
euro-6-7-billion-cap-for-photovoltaic-incentives-reached (accessed 15 January 2016).
78
This local content requirement is being challenged by China before the WTO Dispute Settlement Mechanism
(DSM) in: European Union and Certain Member States — Certain Measures Affecting the Renewable Energy
Generation Sector (Complainant: China), DS 452, in consultations (5 November 2012).
79
Law decree 91/2014, (25 June 2014).

116
 … rigid national support schemes were generally unable to adapt rapidly enough
to … falling costs, raising profits and creating a rate and scale of installations in
some countries almost excessive in a time of general economic crisis. The result
has been sudden and unpredictable changes to a number of national support
schemes, which will, again, curtail investment such that there remains a risk that
the current surplus of PV over planned levels (46TWh rather than 35TWh) will
disappear and become a deficit by 2020 …
Given the prominent role that financial support schemes play in developing
renewable energy today, and given the growing prominence (and cost) of
renewable energy use in the electricity sector, urgent efforts are needed to reform
support schemes to ensure that they are designed in a cost effective, market-
oriented manner. The Commission's guidance is necessary to ensure that support
schemes are adjusted regularly and quickly enough to take account of falling
technology costs and to ensure reforms make renewable energy producers part of
the energy market (such as by moving from feed in tariffs to feed in premiums or
quotas, and using tendering to avoid over compensation etc.); to ensure such
market interventions are correcting market failures and not adding or maintaining
market distortions …
Many national reforms have had a negative impact on the investment climate.
Most critical have been changes that reduce the return on investments already
made. Such changes alter the legitimate expectations of business and clearly
discourage investment, at a time when significantly more investment is needed. 80

4. Scaling back incentives and the investment treaty problem

Investors that are unhappy with the plans to scale back support schemes can resort to dispute
settlement under IIAs. Rules that discourage support on the one hand, and rules that provide
remedies if they are withdrawn or modified, on the other, could cause significant tensions
between a modified EU regime on the promotion of renewable energy and the international
regime on the protection of foreign investment. While the practice to date indicates that there has
been little overlap, a recent influx of investment cases may change this perception.
As was seen in the case studies, the subsidization of renewable energy production through FIT
programs resulted in rapid and unsustainable growth. To respond to this growth, all three states
have had to scale back the incentives; and it is this process of modifying and withdrawing certain
benefits that has led to a significant number of international legal disputes. Foreign investors are
challenging measures that have the effect of reducing the profitability of certain renewable
energy projects. Since the attempts to seek recourse in the domestic courts of the Czech Republic
and Spain by aggrieved PV solar investors have not been fruitful so far, foreign investors have
initiated at least forty international investment treaty arbitrations based on the Energy Charter

80
See European Commission, Report from the Commission to the European Parliament, the Council, the European
Economic and Social Committee and the Committee of the Regions: Renewable energy progress report, COM(2013)
175, 5, 9 (27 March 2013), http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52013DC0175&from=EN (accessed 15 January 2016).

117
Treaty (ECT). 81 There are currently twenty-seven cases against Spain, seven cases against the
Czech Republic and five cases against Italy.
Similar to other IIAs, the ECT provides a standing offer to foreign investors to initiate arbitration
against host states claiming that they have violated the ECT. Investors can bring claims in three
ways: 1) arbitration through the International Centre for the Settlement of Investment Disputes
(ICSID), 2) ad hoc arbitration according to the UNCITRAL arbitration rules, or 3) arbitration
hosted by the Stockholm Chamber of Commerce (SCC) (ECT, Art. 26). Of the forty cases filed
to date, twenty-seven are ICSID arbitrations, nine are ad hoc UNCITRAL arbitrations, and four
are SCC arbitrations.
Considering that all of these cases are pending (as of 15 January 2016) and that there is no
default rule requiring that the registration of the cases or that awards be made publicly available,
it is unknown exactly how many cases exist and on what legal basis the claims are being made.
In the case of Spain, all twenty-seven of the cases are all being brought by investors from
Western Europe. The timing of the cases may give an indication as to which measures are being
challenged. For example, the first of these cases against Spain is an ad hoc UNCITRAL
arbitration brought in November of 2011 by a consolidated group of investors in the Spanish PV
solar sector. 82 It is likely that this claim is based on the changes made to the FIT program in
2010. As was seen in section III(A), two laws passed in 2010 reduced the duration under which
the FIT would be available, put a limit on the number hours that PV solar could benefit from the
FIT, and added a new grid access fee. 83 The claimants will have to show that these changes
amounted to an indirect expropriation of their investment (Art. 13, ECT) or violated the fair and
equitable treatment (FET) obligation (Art. 10, ECT).
The other twenty-six cases against Spain have all been filed in 2013, 2014 or 2015. Three of the
cases are SCC arbitrations 84 and twenty-three are ICSID arbitrations. 85 These cases could be

81
Two of the cases also refer to a bilateral investment treaty (BIT) in addition to the ECT.
82
PV Investors v Spain (UNCITRAL), ECT (1 November 2011). PV Investors is a group of the following 16
investors: AES (France), Ampere (Netherlands), Element (UK), Eoxis (UK), European Energy (Denmark),
Foresight (UK), GreenPower (Denmark), GWMLux (Luxembourg), HgCapital (Germany), Hudson (UK), Impax
(UK), KGAL (Germany), NIBC (Belgium), Scan (Denmark) and White Owl (Germany).
83
See supra n. 45, 46.
84
Charanne (Netherlands) v Spain (SCC), ECT (2013); Isolux (Netherlands) v Spain (SCC), ECT (2013); CSP
(Luxembourg) v Spain (SCC), ECT (2013).
85
RREEF (UK) v. Spain (ICSID Case No. ARB/13/30), ECT (22 November 2013); Antin (France) v Spain (ICSID
Case No. ARB/13/31), ECT (11 November 2013); Eiser (UK) v Spain (ICSID Case No. ARB/13/36), ECT (23
December 2013); Masdar (Netherlands) v Spain (ICSID Case No. ARB/14/01), ECT (11 February 2014); NextEra
(Netherlands) v Spain (ICSID Case No. ARB/14/11) ECT (23 May 2014); InfraRed (UK) v Spain (ICSID Case No.
ARB/14/12), ECT (3 June 2014); Renergy (Luxembourg) v Spain (ICSID Case ARB/14/18), ECT (1 August 2014);
RWE (Germany) v Spain (ICSID Case No. ARB/14/34), ECT (23 December 2014); Stadtwerke (Germany) v Spain
(ICSID Case No. ARB/15/1), ECT (7 January 2015); STEAG (Germany) v Spain (ICSID Case No. ARB/15/4), ECT
(21 January 2015); 9REN (Italy) v Spain (ICSID Case No. ARB15/15), ECT (21 April 2015); BayWa r.e. (Germany)
v Spain (ICSID Case No. ARB 15/16), ECT (8 May 2015); Cube Infrastructure (Luxembourg) v Spain (ICSID Case
No. ARB 15/20), ECT (1 June 2015); Matthias Kruck (Germany) v Spain (ICSID Case No. ARB/15/23), ECT (6
June 2015); KS Invest & TLS Invest (Germany) v Spain (ICSID Case No. ARB/15/25), ECT (16 June 2015); JGC
(UK) v Spain (ICSID Case No. ARB/15/27), ECT (22 June 2015); Cavalum (Portugal) v Spain (ICSID Case No.

118
based on the legislative changes of 2010, but they may also be tied to the changes occurring in
2013: the mandated reduction in the internal rate of return of PV solar projects to approximately
five percent and the seven percent tax on all electricity generated. 86
Seven cases were filed against the Czech Republic in 2013. All cases are being brought by
claimants from Western Europe and all are UNCITRAL arbitrations. 87 These cases are likely to
be based on claims of indirect expropriation and violations of the FET standard as they probably
relate to tax adopted in 2012 that only applies to PV solar projects installed in 2009 and 2010. 88
One case was filed against Italy in late 2013 and four cases in 2015. Four of the cases are ICSID
arbitrations 89 and one is a SCC arbitration. 90 The claims in this case are also likely to be based on
indirect expropriation and the FET standard. The timing of the 2013 case indicates that the
challenged measure may be the cap on annual spending added under the fifth conto energia or
administrative changes that rendered a particular PV solar project unprofitable. 91 However, the
most recent legislative changes introduced by the Italian parliament in June 2014 may give rise
to a larger number of new investment treaty claims because it reduces the price guarantees given
to PV solar producers and could be viewed as a violation of the legitimate expectations of PV
solar investors under the ECT. 92
One major question that arises in these cases is whether and how the investment tribunals will
take into account states’ duties under GATT, 93 the SCM Agreement 94 and the Treaty on the
Functioning of the European Union (TFEU) to discipline the use of subsidies. The respondent
states are likely to argue that the contested measures are justified as means of implementing their
obligations under these treaties. If such arguments turn out to be unsuccessful, states may be
mandated by the investment tribunals to compensate investors in direct violation of their duties

ARB/15/34), ECT, 4 August 2015; E.ON (Germany)v Spain (ICSID Case No. ARB/15/35), ECT, 10 August 2015;
OperaFund (Malta) v Spain (ICSID Case No. ARB/15/36), ECT, 11 August 2015; SoIEs (Germany) v Spain,
(ICSID Case No. ARB/15/38), ECT, 24 August 2015; Hydro Energy (Luxembourg) v Spain (ICSID Case No.
ARB/15/42), ECT, 19 October 2015; Watkins (Luxembourg) v Spain (ICSID Case No. ARB/15/44), ECT, 4
November 2015; Landesbank (Germany) v Spain (ICSID Case No. ARB/15/45), ECT, 12 November 2015.
86
See supra n. 49-53.
87
Of the seven cases filed, six are ad hoc UNICTRAL cases, and one case is registered at the Permanent Court of
Arbitration (PCA): Antaris (Germany) v Czech Republic (PCA UNCITRAL), ECT (8 May 2013); Natland
(Netherlands) v Czech Republic (UNCITRAL), ECT (8 May 2013); Voltaic (Germany) v Czech Republic
(UNCITRAL), ECT (8 May 2013); ICW (UK) v Czech Republic (UNCITRAL) ECT (8 May 2013); Photovoltaic
(Germany) v Czech Republic (UNCITRAL), ECT (8 May 2013); WA (Cyprus) v Czech Republic (UNCITRAL),
ECT (8 May 2013); JSW Solar (Germany) v Czech Republic (UNCITRAL), ECT (1 June 2013).
88
See supra n. 64.
89
Blusun (Belgium) v Italy (ICSID Case No. ARB/14/3), ECT, 21 February 2014; Silver Ridge Power (Netherlands)
v Italy (ICSID Case No. ARB/15/37), ECT, 11 August 2015; Belenergia (Luxembourg) v Italy (ICSID Case No.
ARB/15/40), ECT, 22 September 2015; . Eskosol v Italy (ICSID Case No. ARB/15/50), ECT, 22 December 2015.
90
Greentech Energy (Denmark) v Italy (SCC), ECT, 7 July 2015.
91
See supra n. 77-78.
92
See supra n. 79.
93
General Agreement on Tariffs and Trade 1994 (GATT 1994), 15 April 1994, Marrakesh Agreement Establishing
the World Trade Organization, 1867 UNTS 187 (1999).
94
Agreement on Subsidies and Countervailing Measures (SCM Agreement), 15 April 1994, Marrakesh Agreement
Establishing the World Trade Organization, 1869 UNTS 14 (1999).

119
to control trade distorting subsidies. 95 Moreover, funds that could otherwise have been available
as lawful subsidies to assist establishment of new production of renewable energy could be
channeled towards securing an excessively high return on existing production facilities as a
result of such decisions. In line with this type of reasoning, the Commission has sought leave to
intervene in the PV solar cases against the Czech Republic claiming, inter alia, that the state aid
offered to investors in the Czech Republic to support their PV solar projects was never notified
to the Commission and therefore never constituted permissible state aid according to EU law. 96
The Commission is implying that any award against the Czech Republic in these cases would
itself be illegal state aid and therefore unenforceable. 97
While the outcome of these cases will be closely monitored by those who have invested in
renewable energy technologies under various support schemes throughout the world, these cases
also have a special importance in the European context. All of the cases brought to date are intra-
EU disputes. In previous intra-EU investment treaty disputes, the Commission has stated that
investment tribunals do not have jurisdiction over cases between EU Member States because
only the EU has competence to rule on issues of EU law. 98 The PV solar cases are likely to
intensify the exchange between the Commission and investment treaty tribunals constituted
under the ECT or intra-EU BITs. 99 It is likely that the cases will contribute to a major shift in
policy and practice of the EU and its Member States in regards to investment treaty arbitration. It
is also likely that the CJEU will become involved. 100

95
See the European Commission’s decision of 1 October 2014 to initiate the formal investigation procedure:
(SA.38517): Romania Implementation of Arbitral award Micula v Romania of 11 December 2013, OJ C 393/03,
27-40 (7 November 2014).
96
IA Reporter, ‘Brussels' latest intervention casts shadow over investment treaty arbitrations brought by jilted solar
energy investors’, (8 September 2014), http://www.iareporter.com/articles/20140908_3 (accessed 15 January 2016).
97
See Micula v Romania (ICSID Case ARB/05/20) where the Commission has successfully prevented Romania
from satisfying an ICSID award rendered against it on the grounds that enforcement of the award would be akin to
illegal state aid.
98
See e.g. Electrabel v Hungary (ICSID Case ARB/07/19); EDF v Hungary (UNCITRAL); Micula v Romania
(ICSID Case ARB/05/20); US Steel v Slovakia (PCA UNCITRAL). In Electrabel and EDF, the Commission
intervened as a non-disputing party claiming that the tribunal did not have jurisdiction over claims relating to EU
law. In Micula and US Steel, the Commission intervened as a non-disputing party claiming that any award rendered
against Romania and Slovakia, respectively, would be equivalent to illegal state aid. After an award was rendered
against Romania in 2013 in the Micula case, the Commission enjoined Romania from paying the ICSID award. The
Micula brothers are now suing the Commission before the CJEU to have the injunction quashed, Case T-646/14,
Micula and Others v Commission (2014). In US Steel, the claimants dropped the case after doubts about its eventual
enforceability were made by the Commission in its submissions.
99
The Commission has sought leave to file interventions in six of the seven cases against the Czech Republic and in
nine of the nineteen cases against Spain. Luke Eric Peterson, European Commission wades into solar arbitrations
against Spain, intervening in one case a week before final hearings, IA Reporter (17 November 2014),
https://www.iareporter.com/articles/european-commission-wades-into-solar-arbitrations-against-spain-intervening-
in-one-case-a-week-before-final-hearings/ (accessed 15 January 2016); IA Reporter Brussels' latest intervention
casts shadow over investment treaty arbitrations brought by jilted solar energy investors, (8 September 2014),
http://www.iareporter.com/articles/20140908_3 (accessed 15 January 2016).
100
See Case T-646/14, Micula and Others v Commission (2014).

120
The strength and dedication with which investors have pursued their rights in investment
tribunals, as well as the numerous cases before domestic courts, illustrate the importance of the
interests involved. Such cases are resource demanding, and investors are likely to use such
avenues only as a measure of last resort. However, it remains to be seen whether investors will
follow through or abandon the cases before they are resolved.

5. The ‘Europeanization’ of renewable policy – remedies to address market distortions

The last decade has witnessed increasing tensions between the European internal market in
electricity and national support schemes. In fact, most preferential national treatment schemes at
the Member State level are likely to be in contradiction with the economic freedoms at the heart
of the internal Energy market. 101 These tensions relate specifically: 1) to the level of control that
the EU can exert on its Member States in regard to the design of their national support schemes
for the promotion of renewable energy, and 2) to the functioning of the single energy market
when support schemes for the promotion of renewable energy are designed, implemented, and
largely restricted to energy produced within a specific Member State. To overcome some of the
problems of cross-border ‘leakage’ and of market distortions arising from uncoordinated support
schemes among Member States, the ‘guidance’ offered by the Commission would entail an
increasing ‘Europeanization’ of renewable energy promotion policies.

The 2009 Directive did not include a harmonized support mechanism but rather opted for the
facilitation of cross-border support of energy (statistical transfer between member states, joint
projects and support schemes). 102 However, this type of cooperation has been under-utilized to
date. Member States seem to have relied on their national renewable sources and their capacity to
reach their national targets on their own rather than resorting to these joint mechanisms as
provided by the 2009 Directive. 103 One main reason is likely their interest in developing
domestic production capacity in renewable energy sectors. A major exception to this national
focus has been the cooperation between Norway and Sweden establishing a joint system of green
certificates in 2012. 104 Under this joint system, producers situated in both states can be granted
green certificates, electricity suppliers in both states are required to buy a certain quota of energy

101
Sirja-Leena Penttinen, ‘The Role of the Court of Justice of the European Union in the energy market
liberalization’, in Kim Talus (ed.), Research Handbook on International Energy Law, 262-263 (Edward Elgar 2014).
102
Case C-66/13, Green Network SpA, § 64 (2014); see also European Commission, The support of energy from
renewable energy sources, COM (2005), 627, 11 (7 December 2005); European Commission, The support of energy
from renewable energy sources, Accompanying document to the proposal for a directive of the European Parliament
and the Council on the promotion of the use of energy from renewable sources, SEC (2008) 0057, 13-14 (23 January
2008).
103
European Commission, Review of European and national financing of renewable energy in accordance with
article 23(7) of Directive 2009/28/EC, SEC (2011) 131, 7 (31 January 2011), http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52011SC0131&from=EN (accessed 15 January 2016) .
104
Directive 2009/28/EC, Art. 11. The 2009 Directive was incorporated into the European Economic Agreement
(EEA) making Norway subject to the same rights and obligations as provided under the 2009 Directive (Decision of
the EEA joint Committee 162/2011 of 19 December 2011 amending Annex IV (Energy) to the EEA Agreement OJ L
76, (15/03/2012)).

121
from renewable energy and can do so in either state. 105 The aim is for renewable energy
investments to be made in optimal locations regardless of national borders.

While the example of cross-border coordination of support schemes highlights the possibility for
the implementation of specific policies that reduce problems of ‘leakage,’ they may not be very
helpful in determining how a harmonized EU-wide policy on the design of support schemes
might work. Much of the problem relating to the ‘Europeanization’ of support schemes is
embedded in the EU’s wider policy on permissible state aid. To specifically address problems
highlighted in our case studies, the Commission is modifying (restricting) its approach to state
aid in relation to renewable energy support schemes. In its most recent Community Guidelines
on State Aid for Environmental Protection and Energy 2014-2020 (2014 Guidelines), 106 the
Commission has broadened the scope of the guidelines to specifically deal with support for
renewable energy projects. At the same time, the new guidelines seek to move state aid rules in
line with the liberalization of the electricity market and seek ‘more market oriented approaches
that reflect the evolving cost structure of energy technologies and increasing cost
competitiveness in the internal market’. 107 In accordance with these guidelines, state aid in the
support of renewable energy generation – from 2017 onwards – will be permissible when granted
in a competitive bidding process as a premium increasing cost effectiveness, limiting distortions
of competition and exposing renewables to market signals. 108 Such a change in permissible state
aid is a dramatic turn from the type of state aid that has been permissible to date.

Concerned that the 2014 Guidelines will reduce the ability of Member States to support the
development of their renewable energy plans, the European Renewable Energies Federation
(EREF) initiated annulment proceedings against the chapter on operating aid for renewable
energy sources of the 2014 Guidelines. 109 In support of its action, EREF claimed that: 1) the
Commission lacked competence to adopt the guidelines citing Article 194 of the TFEU and
claiming that technology-neutral renewable energy support schemes cannot be imposed on the
Member States as they impact their sovereign energy rights; 110 2) the Commission did not
provide sufficient justifications for the adoption of a policy requiring all Member States to adopt

105
Swedish Energy Agency (Energimyndigheten) and the Norwegian Water Resources and Energy Directorate
(NVE), The Swedish-Norwegian Electricity Certificate Market: Annual Report 2012,
http://www.nve.no/Global/Elsertifikater/Elcertifikat2013_Eng_TA%20(2).pdf (accessed 15 January 2016);
Energimyndigheten and NVE, Agreement on a Common Market for Electricity Certificates,
https://www.regjeringen.no/en/topics/energy/fornybar-energi/electricity-certificates/id517462/ (accessed 15 January
2016).
106
European Commission, Communication from the Commission, Community guidelines on state aid for
environmental protection 2014-2020, OJ C 200, § 11 (28 June 2014), http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=CELEX:52014XC0628(01) (accessed 15 January 2016).
107
European Commission, A policy framework for climate and energy, 9; European Commission, supra n. 102, §
11.
108
European Commission, supra n. 103, §§ 124-130.
109
Case T-694/14, EREF v Commission (2015).
110
Case T-694/14, EREF v Commission, Application, (22 September 2014).The EREF has additionally claimed that
the Commission cannot use guidelines to adopt ‘quasi legislation’ to go against the provisions of EU secondary law,
i.e. the 2009 Directive which does not attempt to harmonize support schemes but leaves Member States with
flexibility and control to develop such schemes.

122
a technology-neutral competitive binding system to support renewable energy; 3) the
Commission infringed the principle of proportionality as the instruments proposed in the
guidelines are not suitable for the objectives of promoting renewables in the EU while reducing
distortive effects; and 4) the Commission misused its power in trying to legislate on the
harmonization of renewable energy support schemes, an area where even the EU legislator is not
competent. The CJEU held on 23 November 2015 that the claim was inadmissible on the ground
that the applicant was not directly affected by the contested guideline. 111

Confronted with conflicting objectives (national support schemes and the protection of free
movement), the CJEU, a central institution for the interpretation of EU Law, was required to
clarify the scope of national support schemes for the promotion of renewable energy. One
question raised in its existing case law is whether national support schemes can discriminate
against producers from other Member States and whether this can result in an unjustifiable
barrier to trade.
More recently, in the Ålands Vindkraft case, the CJEU was required to assess the denial by the
Swedish Energy Agency to award green certificates to the Finish company, Ålands Vindkraft,
operating a wind farm located on the Åland archipelago in Finland. The CJEU indicated that the
Swedish certificates system was adopted in an effort to achieve the national renewable energy
targets, as provided by in the 2009 Directive. In accordance with its earlier case law, the CJEU
found that the 2009 Directive grants Member States the right to decide ‘to which extent they
support energy from renewable sources which is produced in a different Member State’. 112 The
green certificate scheme is therefore not intended to be extended to producers on the territory of
another Member State. 113 The CJEU concluded that the measure constituted a measure similar to
a quantitative restriction (Art. 34, TFEU), but ruled that the Swedish system was justified on the
ground of the protection of the environment by promoting renewable energy (public interest
ground as listed in Art. 36, TFEU). 114
The CJEU assessed the Swedish certification scheme in light of the proportionality principle115
and explained the three main reasons for the justifications of the territorial limitation in the
Swedish support scheme. First, the CJEU adopted the view ‘that national support schemes are
designed to favor energy at the production stage rather than at the consumption stage as
environmental objectives can mainly be achieved at the production stage’. 116 Second, Member
States should be able ‘to control the effect and costs of their national support schemes according
to their different potentials, while maintaining investor confidence’. 117 The CJEU emphasized
that ‘EU law has not harmonized the national support schemes for green electricity’ and
therefore Member States should in principle be entitled to include territorial limitations in their
national schemes. 118 Third, the Swedish territorial limitation is still necessary even though
111
For more information on the competence of the Commission regarding legislations on renewable energy, see
Peeters supra n. 14.
112
Case C-573/12, Ålands Vindkraft §52 (2014); see also Case-379/98, Preussen Elektra (2001).
113
Ibid., §§ 52-53.
114
Ibid., §§ 78-80 referring to Case-379/98, Preussen Elektra (2001).
115
Ibid., § 83.
116
Ibid., §. 95.
117
Ibid., §. 99.
118
Ibid., §. 94.

123
Sweden has already reached its target, as it can support investment in new installations, give
producers certain guarantees about the future of green electricity and thereby protect investor
confidence.

Ultimately, the CJEU ruled that Member States do not need to open their renewable energy
support schemes to energy producers in other Member States. The reasoning of the CJEU in this
case focused on the efficiency of the actual national support schemes system and its territorial
restrictions to secure investor confidence and thereby promote the renewable energy produced by
each Member State. It seems however that the CJEU failed to address in its proportionality
assessment why territorial restrictions in national support schemes are necessary to achieve the
objective of environmental protection.

Similar conclusions were reached in subsequent case law that relates to the 2001 Directive. In the
Essent Belgium case, 119 the CJEU confirmed that the national support schemes were not intended
to cover green electricity produced in another Member State. 120 The CJEU highlighted the role
of national support schemes in assisting Member States in achieving their national renewable
energy targets and that in doing so they are not required to ‘recognise the purchase of a guarantee
of origin from other Member States or the corresponding purchase of electricity as a contribution
to the fulfilment of a national quota obligation’. 121 The CJEU referred to the reasoning in the
Ålands Vindkraft case. 122 In Ålands Vindkraft and Essent Belgium, the CJEU dismissed the
Opinion of the AG Bot who concluded in both cases that the existing EU renewables scheme is
contrary to the EU free movement rules and therefore cannot be justified. 123

Finally, in a similar case, and ruling on the same basis as the previously mentioned cases, the
CJEU held, in Green Network, that Italian authorities were not entitled to enact national
legislation allowing for the extension of the use of guarantees of origin to green electricity
coming from a third state (in this particular case, Switzerland). National support schemes must in
principle lead to an increase in the national production of green electricity. 124

In light of the above, it is apparent that – according to its current design and implementation –
renewable energy policies and national support schemes are decidedly Member State focused;
and that the policies embedded in the 2001 and 2009 Directives will allow Member States to
design support schemes in favor of domestic production of renewable energy. In all three rulings
briefly described, the CJEU gave great deference to the role of EU Parliament (as reflected in
the 2001 and 2009 Directives) by confirming that only the EU Parliament is empowered to
decide on the opening of national support schemes to other Member States. 125 Given these recent

119
Case C-204-208/12, Essent Belgium NV (2014).
120
Ibid.,§§ 61-66 referring to Case C-573/12, Ålands Vindkraft (2014).
121
Ibid., § 68.
122
See also Henrik Bjørnebye, Joined Cases C-204/12 to C-208/12 Essent Belgium, OGEL 3 (2015).
123
Opinion of AG Bot to the Court in joined Case C-2014/12 to C-208/12, Essent Belgium, EU:C:2013:294 (8 May
2003); Opinion of AG Bot in the Case C-573/12, Ålands Vindkraft, EU:C:2014:37 (28 January 2014).
124
Essent Belgium, supra n. 119, §§ 67-68; Green Network, supra n. 10, § 57.
125
Marek Szydlo, How to reconcile national support for renewable energy with internal market obligations? The
task for the EU legislature after Ålands Vindkraft and Essent, 52(2) Common Market Law Review, 489, 509-510
(2015).

124
decisions, and in light of Member State concerns about the proposed reduction in permissible
state aid for the support of renewable energy, the Commission’s goal of a ‘Europeanization’ of
renewable energy support schemes seems likely to meet significant resistance among Member
States. 126

6. Conclusions – towards an EU-wide policy on the promotion of renewable energy?

As we have seen, the ambition of the Commission to regulate and coordinate Member State
policies to promote production and consumption of renewable energy, combined with its aim to
increase the flexibility of Member States in setting their targets, faces essential legal hurdles,
both within the EU and under IIAs. As announced by the Commission, the reforms cannot be
carried out without significant reforms of the current regulatory framework. 127 This article has
shown that such a reform is likely to shift the ‘policy space’ of Member States from the current
flexibility to design support schemes to a flexibility in setting national targets. We have seen that
many Member States are in the process of scaling back their support schemes to the PV solar
sector. However, the situation of this sector is a special case and should not necessarily define
the policy space needed within other renewables sectors.
The reforms that Member States have undertaken so far demonstrate the problems of scaling
back support schemes that investors have relied on for their long term investments. While the
Commission is likely to face many of the same challenges, it is the Member States and not the
Commission that will be sued by foreign investors under existing IIAs due to the fact that
Member States will have to amend their support schemes. Initiatives by the Commission to
prevent Member States from paying compensation mandated by investment tribunals, such as in
the Micula case, 128 is likely to further limit the policy space for Member States when scaling
back their support schemes, and may lead to significant resistance among Member States against
the Commission’s proposals for policy reforms.
The case studies have shown the important effects support schemes can have in generating
investment, and the detrimental effects that scaling back of support schemes can have for the
establishment of new production capacity. Against this background, we may ask whether the
Commission proposals are likely to increase production and consumption of renewable energy.
On the basis of the case studies, it can be argued that the current policy space may lead to long
term ineffectiveness of support schemes. Stricter state aid rules and rules regarding free
movement of products would most likely have prevented Member States from designing such
support schemes. However, whether such rules will promote long term effectiveness of support
schemes remains unclear. The ‘carrot’ that the Commission proposals include for Member States
– the flexibility in setting and achieving national targets – is not likely to enhance the
effectiveness of national policy measures in promoting renewable energy.
126
Etienne Durand and Malcolm Keay, National support for renewable electricity and the single market in Europe:
The Ålands Vindkraft case, Oxford Energy Comment, Oxford Institute for Energy Studies, (2014)
http://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/08/National-support-for-renewable-electricity-and-
the-single-market-in-Europe-the-%C3%85lands-Vindkraft-case.pdf (accessed 15 January 2016).
127
European Commission, supra n. 107, 7.
128
See supra n. 96, 97.

125
All the above factors point in the direction of increased reliance on the European Union as
responsible for designing and implementing measures to promote renewable energy. Such
transfer of competence would restrict the policy space of Member States. Whether this would be
acceptable to Member States and in line with the subsidiarity principle remains to be seen. What
is fairly clear is that we will see significant shifts in the way that support schemes for renewable
energy are designed, and such shifts are likely to have important consequences for investors’
behavior.

126
Towards a future investment treaty: lessons from indirect expropriation cases
due to measures to protect the environmental and public health
Sukma Dwi Andrina 1

1. Setting the scene

In 2011, Phillip Morris, a tobacco company, brought a claim against Australia in investment
treaty arbitration due to Australia’s so-called plain packaging regulation. The regulation prohibits
all tobacco products and packaging sold in Australia to display any trademarks, symbols,
graphics or images. Phillip Morris claims that the ban has expropriated its investment as it is now
unable to use its intellectual property on its tobacco products and packaging, a violation of
Australia – Hong Kong Bilateral Investment Treaty. 2
In 2012, Vattenfall, a Swedish electricity generator company, brought a claim against Germany
also in investment treaty arbitration. The claim arose from Germany’s decision to phase out
nuclear power in the country, triggered by the nuclear disaster in Fukushima. The regulation
orders immediate closure of the oldest power plants, including two plants owned by Vattenfall.
Vattenfall claims that this measure constitutes an expropriation of its investments, which should
be compensated under the Energy Charter Treaty. 3
The above cases are still pending however they have brought a significant public attention. It
appears that there is a potential clash between international investment law and environmental
law, which also often times cover public health issue. On the one hand, protection of the
environment and public health has moved up in the political agenda of governments. In
international level, governments have signed at least two hundred eighty international
environmental treaties, mostly aiming to enhance cooperation and knowledge sharing in
environmental efforts. 4 These treaties have also inspired domestic environmental law making.
Further, the European Union has adopted the integration principle where Article 11 of the Treaty
of the Functioning of the European Union mandates that “Environmental protection

1
The author started her research in the field of international environmental law during her LL.M in University of
Minnesota Law School. Thereafter, she took another LL.M in international environmental law at Stockholm
University where she did a research on the interplay between international environmental law and international
investment law. She was a former legal counsel at the Arbitration Institute of Stockholm Chamber of Commerce.
The article reflects solely her own opinion. The author thanks Oskar Foborg for his valuable inputs.
2
Phillip Morris Asia Limited v the Commonwealth of Australia, PCA Case No. 2012-12, Notice of Arbitration dated
21 November 2011, paras 1.2 – 1.5, www.italaw.com (accessed4 March 2015).
3
Nathalie Bernasconi-Osterwalder and Martin Dietrich Brauch, The State of Play in Vattenfall v. Germany II:
Leaving the German public in the dark, International Institute for Sustainable Development Briefing Note, 2 (2014),
http://www.iisd.org/sites/default/files/publications/state-of-play-vattenfall-vs-germany-II-leaving-german-public-
dark-en.pdf, accessed 27 February 2015.
4
United Nations Environment Programme, UNEP Register of International Treaties and other Agreements in the
Field of Environment, Nairobi, 30 December
2005,http://www.unep.org/delc/Portals/119/publications/register_Int_treaties_contents.pdf (accessed 20 October
2015).

127
requirements must be integrated into the definition and implementation of the Union policies and
activities, in particular with a view to promoting sustainable development.” 5
Critics have pointed out that investment treaty arbitration allows foreign investors to challenge
regulations with the purpose of protecting the environment and public health, hence may create a
chilling effect. The debate goes further on whether it is still necessary and desirable for countries
to enter into and maintain international investment treaties. The regime was historically aimed to
protect investment by investors from the Western countries in developing countries after the end
of the colonization era. 6Investment treaty arbitration is a unique mechanism within the sphere of
international law where individuals, in this case foreign investors, have a right to directly bring a
claim against host state governments for an alleged violation of the investment treaty. The
mechanism was created as a response to inefficient and unreliable diplomatic protection with
respect to disputes arising from the host state and foreign investor relationship. 7
From foreign investor’s perspective, a policy which aims to protect the environment and public
health may reduce the profitability of its investment. A classic example is an environmental
requirement that is economically burdensome. Further, this kind of policy also has the potential
to completely restrict foreign investment in certain areas, for example a ban on exploitation of
certain natural resources. It is therefore a question of a stable legal environment for foreign
investors. Foreign investors need to be able to plan their investment ahead and minimize the risk
of value-depriving measures. Thus, it is natural from commercial lenses that they expect
regulatory regime to remain relatively stable.
One of the means to reduce the above risks is for government to enter into investment treaties. In
these treaties, governments promise to provide protection against discrimination, unfair and
inequitable treatment and unlawful expropriation to foreign investor from its treaty partner. Each
of this protection standard has a potential clash with environmental and public health policies.
For instance, an environmental regulation which was imposed to a foreign investor without due
process may violate fair and equitable standard of protection. 8 This article focuses only on
indirect expropriation cases for a couple of reasons.
Firstly, protection against indirect expropriation is the standard that has the potential to balance,
on the one hand, the foreign investor’s interest to have a stable regulatory framework and ensure
profitability of its investment, and, on the other hand, government’s interest to pursue public
policy objectives. The provision requires a foreign investor to be compensated if a government
takes away the title or control of its investment for the purposes of, among others, protecting the

5
Consolidated Version of the Treaty on the Functioning of the European Union (TFEU), Art. 11, 09 May 2008 O.J.
C 115/47.
6
Rudolf Dolzer and Christoph Schreurer, Principles of International Investment Law, 4-5 (2nd ed., OUP 2012).
7
Susan D. Franck, Rationalizing Costs in Investment Treaty Arbitration, 88 Washington University Law Review,
Issue 4, 769 (2011),
http://openscholarship.wustl.edu/cgi/viewcontent.cgi?article=1045&context=law_lawreview(accessed 15 July
2015).
8
For example, in Metalclad Corp v. the United Mexican States, ICSID Case No. ARB(AF)/97/1 (2000), the
measure at issue concerned rejection of permit for landfill by a municipality government due to environmental
reason. The tribunal found that the rejection of permit amounted to violation of fair and equitable treatment standard
protection in the NAFTA. The tribunal based its finding on, among other things, the fact that the permit was rejected
at a municipal meeting of which the foreign investor received no notice and at which it was given no opportunity to
appear.

128
environment and public health. This may happen when government formally expropriates
investor’s private land for environmental conservation purposes. The investor should also be
compensated in case of a measure with an effect equivalent to expropriation, even when the title
and control of the investment remains with the investor. This situation is commonly referred to
as indirect expropriation. In both cases, government may still adopt the desired environmental
and public health measure – while the foreign investor shall obtain compensation if the measure
deprives it from its investment.
Secondly, critics have continuously pointed out that indirect expropriation provision may hamper
environmental and public health protection efforts as government may be reluctant to regulate
for fear of claims in investment arbitration, or commonly referred to as regulatory chill. In fact,
one can find a claim of indirect expropriation in most investment arbitration cases which arose
because of measures to protect the environment and public health. Therefore, it is important to
analyze how tribunals have adjudicated these cases.
The European Union is an important investment treaty actor as its Member States are parties to
some 1,500 bilateral investment treaties. The European Union has recently concluded the texts of
a couple of free trade agreements with investment chapter with Canada and Singapore. In
addition, it is negotiating a free trade and investment pact with the United States, the
Transatlantic Trade and Investment Partnership (TTIP). Considering these facts, the investment
protection provisions under the European Union investment agreement have the potential to
inspire future free trade and investment treaties. The aim should be to balance the protections for
foreign investment, which in the end will bring legal certainty and in turn, economic growth, and
the interest of governments in managing public affairs. Among other things, a carefully-drafted
indirect expropriation provision will serve this balance.
This article considers the formulation of indirect expropriation in the Comprehensive Economic
and Trade Agreement between the European Union and Canada (“CETA”) and the European
Union – Singapore Free Trade Agreement (“EU-Singapore Trade Agreement”). It will identify
the factors to be taken into account by tribunals when adjudicating indirect expropriation claims
under these two agreements. Further, it will examine how these factors have been interpreted by
tribunals in cases which deal with environmental and public health measures. The aim is to see
whether the factors provided in the CETA and the EU – Singapore Trade Agreement have served
enough balance between government’s interest and foreign investor’s interest.
The first part will be a brief overview of the role of investment treaties in protecting foreign
investments. The second part will address the basic principle of expropriation under international
law and in the CETA and EU – Singapore Agreement. The third part will examine case law to
reflect on how tribunals have been interpreting the factors of indirect expropriation under the
current investment treaties. The article concludes with a summary and room for clarification.

2. The roles of investment treaties in protecting foreign investments

Modern investment treaties aim to promote prosperity through trade and investment
liberalization. 9 Specifically, the objective is to attract inward foreign investment while at the

9
Abba Kolo and Thomas Walde, Environmental Regulation, Investment Protection and Regulatory Taking in
International Law, 50 International and Comparative Law Quarterly, Issue 4, 811 (2001).

129
same time protecting a State’s own investors when making investment abroad. 10 This is achieved
by reducing barriers to entry, eliminating various forms of protectionist treatment and enhancing
the stability of investment terms, including by promising that a host state will not take away a
foreign investment without fair compensation. 11 In recent years, nongovernmental organizations
and environmental groups have made criticisms towards the regime due to the claims by foreign
investors in investment treaty arbitration due to measures to protect the environment and public
health. 12 Nevertheless, governments somehow are still showing interests in maintaining the
regime. The United Nations Conference on Trade and Development (UNCTAD) reported that in
2014, governments signed twenty-seven investment treaties. This means one treaty every other
week. 13
Empirical studies are inconclusive on the question of whether or not the existence of investment
treaty indeed increases foreign direct investment. One of the latest studies by the UNCTAD
reports that the majority of empirical studies conclude that there is a positive connection between
the existence of an investment treaty and the flow of foreign direct investment. 14 Further, another
recent empirical paper concludes that on average foreign direct investment stocks increase by
35% in countries that have ratified bilateral investment treaties compared to the country pairs
without a ratified treaty. 15 The study by the UNCTAD however noted that the role of investment
treaty is complementary, as it cannot substitute for the need of sound domestic policies,
regulatory and institutional frameworks. 16 Its key role is to contribute to predictability, stability
and transparency in the relationship between host governments and foreign investors. 17
Legal predictability and certainty in a country is one of the key considerations for investors to
invest. As rightly pointed out by Dolzer and Schreurer, the very nature of foreign investment
carries with it a long-term relationship between the foreign investor and the host government. 18 It
is not uncommon that a foreign investor has to put in substantial financial resources at the
beginning of the investment, with the expectation to recover this amount and gain profit in a long
term. The money invested in the project typically cannot be used elsewhere as installations and
facilities may be specifically designed and adjusted to a specific project and location. 19 In this

10
Susan D. Franck, Conflating Politics and Development? Examining Investment Treaty Arbitration Outcomes, 55
Virginia Journal of International Law (2015),http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2574299(accessed
20 April 2015).
11
Kolo and Walde, Environmental regulation, 2.
12
See, among other things, a paper from Friends of the Earth Europe, The TTIP of the Anti-Democracy Iceberg: The
risks of including investor-to-state dispute settlement in transatlantic trade talks, October 2013,
http://www.foeeurope.org/sites/default/files/foee_factsheet_isds_oct13.pdf(accessed 27 October 2015).
13
United Nations Conference on Trade and Development (UNCTAD), IIA Issues Note – Recent Trends in IIAs and
ISDS, 1, February 2015,http://unctad.org/en/PublicationsLibrary/webdiaepcb2015d1_en.pdf(accessed 10 March
2015).
14
UNCTAD, IIA Issues Note – Working Draft: The Impact of International Investment Agreements on Foreign
Direct Investment: An Overview of Empirical Studies 1998–2014, 1 September
2014,http://investmentpolicyhub.unctad.org/Upload/Documents/unctad-web-diae-pcb-2014-Sep%2024.pdf(accessed
1 March 2015).
15
Arjan Lejour and Maria Salfi, The Regional Impact of Bilateral Investment Treaty on Foreign Direct Investment,
CPB Discussion Paper 298, 4 (2015), https://ideas.repec.org/p/cpb/discus/298.html (accessed 3 March 2015).
16
UNCTAD, The Impact of International Investment Agreements on Foreign Direct Investment, 4.
17
Ibid.
18
Dolzer and Schreurer, Principles of International Investment Law, 21.
19
Ibid.

130
respect, investment treaty may enhance predictability by adding an international obligation of
States with regards to investment relationship. Further, it gives right to foreign investors to
resolve a dispute with a host state under the treaty in international arbitration which is considered
to be a neutral venue.
Governments do require some flexibility in managing public affairs. Environmental and public
health law-making needs even more flexibility as it responds to the changing environmental
condition and the society’s acceptance to it. Further, as technology is progressing, it brings
environmental solutions that were unavailable before. Governments may wish to require investor
to implement this new environmentally-friendly technology.
From foreign investor’s perspective, a measure to protect the environment and public health may
destroy the value of its investment. A typical example is a complete ban on certain chemicals
because of public health concern. In addition, this measure may also come as a surprise.
Investors may not have problems with a comprehensive environmental and public health regime
that exists at the time it makes the investment. 20 The situation is different when a measure is
adopted after the investor has put in substantial amount of resources to the investment project.
This is not to say that environmental and public health regime must be totally unchanged. 21 As
asserted by Thomas Walde, the question is rather to draw the line of when an unexpected
regulatory change goes ‘too far’, in terms of its impact on the value of the investment and on the
investor’s legitimate expectation, so that the society, as opposed to the foreign investor as an
individual, should bear the economic burden. 22
This is where the role of indirect expropriation provision comes into play. It requires the investor
to be compensated if a measure does go too far and at the same time, the government may still
adopt the desired measures. A risk is that investors may bring a claim for practically every public
interest regulation that threatens its profitability – which is of course undesirable. Therefore, the
careful drafting of indirect expropriation provision coupled with consistent and fair interpretation
by tribunals may reduce this risk and enhance the balancing of interests between host
government and foreign investor.
Governments have long realized the potential clash between the investment law regime and
protection of the environment and public health. An OECD survey concludes that inclusion of
environmental language in investment treaties is not a new development, in fact it is becoming
more common. The 1985 China – Singapore BIT is the first investment treaty to include such
language. In 2005, more than 50% of new treaties incorporates environmental concern. Among
1,623 investment treaties surveyed by the OECD, twelve of the treaties (0.75%) contain
provision that exclude nondiscriminatory environmental regulation as a basis for claims of
indirect expropriation. 23 In the later part it may be seen how this provision has been interpreted
in some cases.

20
Kolo and Walde, Environmental regulation, 5.
21
Ibid.
22
Ibid.
23
Kathryn Gordon and Joachim Pohl, Environmental Concerns in International Investment Agreements: A Survey,
OECD Working Papers on International Investment, 2011/01, 5, OECD Publishing, June
2011,http://dx.doi.org/10.1787/5kg9mq7scrjh-en, (accessed 5 August 2015).

131
3. Formulation of indirect expropriation provision in the European Union’s investment
treaty
As a matter of principle, international law provides each State the sovereign right to expropriate
– a right that is uncontested. Investment treaties typically provide only the conditions and
consequences of an expropriation to ensure that it is lawful. 24 For instance, most treaties require
that expropriation is for public purpose, non-discriminatory, conducted in accordance with due
process and compensated. As addressed by the Permanent Court of International Justice in
Chorzow Factory case, when an expropriation is lawful, the investor is entitled to “the value of
the company at the time of dispossession, plus interest to the date of payment”. 25 When it is
unlawful, the investor has the right to obtain loss of profits on top of the compensation. 26
There are two types of expropriation. Direct expropriation is when the host government takes
away the title of a private property and it is usually formalized in an expropriation decree or
law. 27 This type has become uncommon. The second type is indirect expropriation, or a measure
tantamount to expropriation, which is understood as the situation where the government adopts a
measure which has an effect equivalent to expropriation even when the title of the investment
remains with the investor. 28 The latter type has raised significant critics since it is perceived as
limiting the power of government to regulate for environmental and public health protection.
It is impossible at this moment to know how the expropriation provision in future treaty would
specifically look like. The CETA and the EU – Singapore Trade Agreement, even though still
need to go through legal review and be ratified by the European Parliament, may to some extent
display the European Union’s position on a desirable indirect expropriation provision: 29
“Neither Party may nationalize or expropriate a covered investment either directly, or
indirectly through measures having an effect equivalent to nationalization or
expropriation (hereinafter referred to as “expropriation”), except:
(a) For a public purpose;
(b) Under due process of law;
(c) In a non-discriminatory manner; and
(d) Against payment of prompt, adequate and effective compensation”.
A special annex, Annex X.II provides further clarification on this provision as follows: 30
“The Parties confirm their shared understanding that:

24
Suzy H. Nikiema, Best Practices in Indirect Expropriation, International Institute for Sustainable Development, 1
March 2012, http://www.iisd.org/pdf/2012/best_practice_indirect_expropriation.pdf (accessed 15 March 2015).
25
Factory at Chorzow (Germany v Poland), P.C.I.J. (ser. A) No. 12 (Order of Nov. 21), 47 (1927).
26
Ibid.
27
Nikiema, Best Practices.
28
Ibid.
29
Consolidated text of Comprehensive Economic and Trade Agreement (CETA), Art. X.11 (1),
http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf (accessed 27 October 2015); EU -
Singapore Free Trade Agreement, available at http://trade.ec.europa.eu/doclib/press/index.cfm?id=961(accessed 27
October 2015).
30
Consolidated text of Comprehensive Economic and Trade Agreement, Annex X.11, Art. 1-3; EU-Singapore Free
Trade Agreement.

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 1. Expropriation may be either direct or indirect:
direct expropriation occurs when an investment is nationalised or otherwise directly
expropriated through formal transfer of title or outright seizure; and indirect
expropriation occurs where a measure or series of measures of a Party has an effect
equivalent to direct expropriation, in that it substantially deprives the investor of the
fundamental attributes of property in its investment, including the right to use, enjoy and
dispose of its investment, without formal transfer of title or outright seizure.
The determination of whether a measure constitutes an indirect expropriation requires a
case-by-case, a fact-based inquiry that considers, among others (a) the economic impact
of the measure and its duration (b) the extent to which the measure interferes with the
property and (c) the character of the measure.
For greater certainty, except in the rare circumstances where the impact of a measure or
series of measure is so severe in light of its purpose that it appears manifestly excessive,
nondiscriminatory measure or series of measure by a Party that are designed and
applied to protect legitimate public objectives such as public health, safety and the
environment, do not constitute indirect expropriation”.
The provision has the potential to strike a better balance between the governments’ regulatory
interest and investor’s commercial interest, hence representing a significant improvement
compared to existing treaties. Firstly, this provision does try to define indirect expropriation. As
noted by the UNCTAD, most IIAs today refer to both direct and indirect expropriations by using
phrases such as “equivalent to” or “tantamount to”, while not specifying what constitutes an
indirect expropriation. Further, it has been observed that arbitral tribunals have taken a variety of
approaches to decide when a state’s action constitutes indirect expropriation. 31 Defining indirect
expropriation and identifying factors to be taken into account in adjudication of its claims may
increase legal certainty both for investors and states.
Secondly, it carves out measures to protect the environment and public health from the scope of
indirect expropriation. Thus, it has the potential to broaden the policy space for governments to
regulate these important matters. However, it also provides safeguards for foreign investors by
requiring that such a measure be non-discriminatory and not manifestly excessive. Thirdly, while
it identifies the factors to be taken into account in the adjudication of indirect expropriation
claims, it also requires case-by-case and fact-based examination of the claims. This represents a
more flexible approach. When the indicators of indirect expropriation is rigidly regulated, this
will screen out situations or factors that have not been perceived by drafters at the time of the
treaty making. Flexible provisions are even more relevant as investment treaties are typically
alive for decades and environmental conditions are constantly changing.

4. Adjudication of indirect expropriation claims which arose from measures to protect the
environment and public health

31
UNCTAD, Expropriation: A Sequel, UNCTAD Series on Issue in International Investment Agreements II,
UNCTAD/DIAE/IA/2011/7, 8 (2012), http://unctad.org/en/Docs/unctaddiaeia2011d7_en.pdf (accessed 27 October
2015).

133
Most of indirect expropriation factors in the CETA and EU – Singapore Trade Agreement are
not new as tribunals have used them in deciding previous claims. The following part will discuss
how tribunals have assessed the factors one by one. Firstly, when substantial deprivation occurs.
Secondly, how tribunals have considered that a measure is designed and applied to protect the
environment and public health. Thirdly, when a measure to protect the environment and public
health is “manifestly excessive” and “discriminatory” so as to be precluded from the scope of
indirect expropriation. Are there other factors that have been assessed in practice that have not
been specifically mentioned in the CETA and EU – Trade Singapore Agreement? The aim is to
reflect on whether the formulation of indirect expropriation in the European Union investment
treaty will sufficiently safeguard the balance and whether there is a room for clarifications in the
future treaty.

4.1 Substantial deprivation of investment

At the outset, the tribunal in the widely quoted Starret Housing v. Iran set the classic definition
of indirect expropriation as follows: 32
“It is recognized in international law that measures taken by a State can interfere with
property rights to such an extent that these rights are rendered so useless that they must
be deemed to have been expropriated, even though the State does not purport to have
expropriated them and the legal title to the property formally remains with the original
owner”.
In investment treaty arbitration, different wordings have been used to describe the level of
“deprivation”, among others, an interference that “deprives the owner of fundamental rights of
ownership”; “makes rights practically useless”; “makes any form of exploitation of the property
disappear”; “effectively neutralizes the benefit of the property” and “the property can no longer
be put to reasonable use”. 33 CETA and the EU – Singapore Trade Agreement provide that the
most important indicator establishing indirect expropriation is “substantial deprivation”.
The following part discusses cases brought under the investment chapter of the North American
Free Trade Agreement (NAFTA). These cases are particularly interesting because of
environmental and public health elements in the factual background. Article 1110 of the NAFTA
reads almost similarly as Article X.11 (1) of the CETA as follows:
“No Party may directly or indirectly nationalize or expropriate an investment of an
investor of another Party in its territory or take a measure tantamount to nationalization
or expropriation of such an investment (“expropriation”), except:
(a) for a public purpose,
(b) on a non-discriminatory basis,
(c) in accordance with due process of law and Article 1105 (1), and
(d) on payment of compensation in accordance with paragraphs 2 through 6.”

32
Starret Housing v. Iran, Interlocutory Award No. ITL 32-24-1, 4 Iran-United States Claims Tribunals Reports
122, 154, 19 December 1983.
33
L. Yves Fortier and Stephen L. Drymer, Indirect Expropriation in the Law of Investment: I know when I see it, or
caveat investor, 19 ICSID Review: Foreign Investment Journal, Issue 2, 293-328 (2004).

134
Unlike the CETA and the EU – Singapore Trade Agreement, the NAFTA text does not provide
clarification on indirect expropriation. In practice, it may be observed that tribunals deciding
NAFTA cases have made distinction between measures within the general regulatory power of
government and indirect expropriation. The former is non-compensable, the latter is
compensable. 34 The key consideration is the impact of the measure. In deciding the impact,
tribunals have considered several factors depending on the factual background of the case, as
explained in the following part.
The length of the measure
A tribunal has rejected an indirect expropriation claim when the measure is adopted for such a
short period of time so as to the impact is hardly significant. S.D Myers v Canada concerned the
actions of the Canadian government which banned the export of a certain waste, PCB, to the
United States. The Canadian government further closed the Canada-U.S border to implement the
ban. The investor was therefore prevented to do its business, which was to export PCB waste to
be treated in the United States. 35
In addressing investor’s claim of indirect expropriation, the tribunal asserted as follows: 36
“Expropriations tend to involve the deprivation of ownership rights, regulations a lesser
interference. The distinction between expropriation and regulation screens out most
potential cases of complaints concerning economic intervention by a state and reduces
the risk that governments will be subject to claims as they go about their business of
managing public affairs.”
The tribunal took note that the export ban only lasted eighteen months and the Canada - U.S
border was later reopened for the export to recommence. It considered this as a delayed
opportunity and not a deprivation of the investment. 37
The economic impact of the measure
The key factor in establishing that an indirect expropriation has taken place is the effect of the
measure upon the economic benefit and value of the investment. 38 Thus, decisions on indirect
expropriation have largely been based on economic considerations. 39
NAFTA cases which arose from measures to protect the environment and public health present
important findings and in general it can be seen that the threshold of economic impact has been
high. This high threshold is all the more true in cases when an environmental measure does not
ban the activity as such, but it is very financially burdensome for the foreign investor. In Glamis
Gold, Ltd. v. the United States of America, the government of California required the foreign

34
See for instance S.D Myers, Inc v. Government of Canada, UNCITRAL, Final award 30 December 2002,
www.italaw.com (accessed 27 October 2015); Glamis Gold, Ltd v the United States, UNCITRAL, Award 9 June
2009, www.italaw.com (accessed 27 October 2015).
35
S.D Myers, Inc v. Government of Canada, UNCITRAL, Partial Award, paras 142-144, www.italaw.com,
(accessed 3 March 2015).
36
Ibid., para. 282.
37
Ibid., para. 287.
38
Dolzer and Schreuer, 112.
39
Ibid.

135
investor to apply a certain mining technique to its gold mining project, called backfilling. 40 This
technique aimed to restore the environmental condition after the mining was completed. The
investor claimed that the measure constituted indirect expropriation, as the cost of backfilling
dramatically decreased the value of its project. 41
Along the same lines as in S.D Myers, the tribunal held that a measure must “substantially
“impair(ed) the investor’s economic rights, i.e ownership, use, enjoyment or management of the
business, by rendering them useless. Mere restrictions on the property rights do not constitute
takings.” 42 The award provided a hundred-page analysis on the calculation of the impact, which
is not a common one in investment treaty arbitration. It led to a finding that the value of the
mining project exceeded USD 20 million after the adoption of the measure. 43 The tribunal
viewed this as “a very positive valuation” – hence the backfilling requirement did not establish
an indirect expropriation. 44 This was also regardless the finding that backfilling requirements
were estimated to decrease the level of anticipated profit by 55-59 per cent. 45
The decrease of profit in this case sounds significant from commercial point of view, however,
the tribunal considered it to be not significant enough to “render the investment useless”. This is
a very high threshold. The case is an example where the tribunal stroke a fair balance between
government’s interest to have the mining conducted in an environmental-sensitive manner and
the investor’s interest to ensure the commerciality of its investment.
Another interesting issue concerns foreign investors which operate different businesses under
one company in a host state’s jurisdiction. The question then is if a measure deprives the investor
only one part of the business, would this be sufficient to establish indirect expropriation?
Chemtura Corp v. Canada presents illustrative facts in this respect. The case concerned an
eventual phase-out of lindane, an agricultural pesticide, citing environmental and public health
reasons. 46 The ban prevented the foreign investor’s company in Canada, Chemtura Canada,
from producing and selling lindane and therefore the foreign investor claimed that the ban was
tantamount to expropriation. 47
The tribunal showed a similar approach as in the CETA and the EU – Singapore Free Agreement
that the examination of “substantial deprivation” must be conducted on a case-by-case basis. 48An
example provided in the award is if a measure deprived the value of a crucial asset of an
investment, this may constitute indirect expropriation even when other assets were unaffected.

40
Glamis Gold, Ltd. v. United States of America, Award 8 June 2009, paras 15-16,
http://www.state.gov/documents/organization/125798.pdf, (accessed on 12 March 2015).
41
Ibid., para. 11, 361, 362.
42
Ibid., para. 357.
43
Ibid., para. 536.
44
Ibid., para. 249.
45
Nathalie Bernasconi-Osterwalder and Lise Johnson (eds.), International Investment Law and Sustainable
Development: Key Cases from 2000 – 2010, International Institute for Sustainable
Development,http://www.iisd.org/pdf/2011/int_investment_law_and_sd_key_cases_2010.pdf (accessed 27 October
2015).
46
Chemtura Corporation v the Government of Canada, Award 2 August 2010, paras 30-34,
http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/disp-diff/chemtura-14.pdf
(accessed 10 March 2015).
47
Ibid, para. 52.
48
Ibid, paras 260-263.

136
Nevertheless, evidence in this case showed that lindane business was not a significant part of
Chemtura Canada. Further, Chemtura’s sales from lindane were a relatively small part of the
overall sales of Chemtura Canada at that time. 49 Therefore, the tribunal found that the impact
was not significant enough to establish an indirect expropriation. 50
It can be concluded that a measure which totally renders one part of business unable to make
profit is not enough to establish indirect expropriation. The impacted part of business should be
the main business or the significant profit-maker of the whole investment. Interestingly, the
tribunal also assessed the character of the measure after assessing the impact. The tribunal
asserted that the State “took measures within its mandate, in non-discriminatory manner,
motivated by the increasing awareness of the dangers presented by lindane for human health and
the environment. A measure adopted under such circumstances is a valid exercise of the State’s
police powers and, as a result, does not constitute an expropriation”. 51
Nevertheless, it is unclear whether character of a measure is in itself a sole criteria in finding
indirect expropriation – or whether it is additional to the impact of the measure. The CETA and
the EU – Singapore Free Trade Agreement address this lack of clarity by specifically providing
that measures to protect the environment and public health is not considered to be an indirect
expropriation to the extent that it is nondiscriminatory and not manifestly excessive.
The impact of the measure to investor’s legitimate expectation
Both the CETA and the EU – Singapore Trade Agreement do not explicitly mention
“interference to investor’s legitimate expectation” as one of the factors in finding indirect
expropriation. This is an approach employed among others by European Court of Human Rights,
“one important factor for the court’s assessment (of an expropriation claim) is whether the
individual has some form of legitimate expectation that his or her rights will not be regulated or
restricted in a certain way”. 52 Nevertheless, the indirect expropriation provision in the CETA
and the EU – Singapore Trade Agreement specifically mentions that the factors are not
exhaustive – therefore it opens up possibility of future tribunals to consider the existence of
legitimate expectation on the part of the investor.
When one looks at lessons from the NAFTA cases, the NAFTA text also does not explicitly
mention this factor, however some NAFTA tribunals have taken it into account in their
adjudication of indirect expropriation claims. Furthermore, the United States latest model
Bilateral Investment Treaty, which is the 2012 model, specifically mentions this factor as
follows:
“The determination of whether an action or series of actions by a Party, in a specific fact
situation, constitutes an indirect expropriation, requires a case-by-case fact-based
inquiry that considers, among other factors:

49
Ibid.
50
Ibid.
51
Ibid., para. 266.
52
Markus Perkams, ‘The Concept of Indirect Expropriation in comparative public law – searching for light in the
dark’, International Investment Law and Comparative Public Law, 149 (Oxford University Press 2010).

137
 …(ii) the extent to which the government action interferes with distinct, reasonable
investment-backed expectations...”
It is fair to predict that the United States may wish to incorporate this factor in the TTIP and
therefore, it is interesting to see how this factor has been interpreted by tribunals. In principle, an
important source of legitimate expectation is the legal framework of the host country at the time
of the investment. 53 In addition, some cases show that tribunals have not always required
legitimate expectation to be based on specific and explicit undertakings or representations of the
host state; implicit assurances combined with the investor’s assumptions would be sufficient.
Nevertheless, tribunals have used a high threshold concerning investor expectations. 54
The existence of government’s representation was a key factor in the finding of an indirect
expropriation in a NAFTA case, Metalclad Corporation v. The United Mexican States. In this
case, the foreign investor claimed that it purchased a local company after the federal government
of Mexico had made representations that such company had obtained all the necessary permits to
operate a hazardous landfill. 55 The dispute arose because the municipal government later rejected
the investor’s application for a construction permit, citing environmental reason. 56
The tribunal ruled that an expropriation had occurred due to firstly, the absence of a basis for the
permit rejection. 57 Referring to Mexican law, the tribunal found that it was not within the
municipal government’s authority to reject a construction permit on environmental ground. 58 The
second factor was the existence of representation from federal government, to which the foreign
investor was entitled to rely on. 59 The tribunal reasoned that the federal government had made
representation that the foreign investor was allowed to commence construction and operation of
the landfill based on its existing permit. 60
In contrary, in Methanex Corporation v. the United States of America, the tribunal found that
there was no specific commitments from the government regarding the investment. The case
concerned a California ban on the use of MTBE, a chemical made from methanol, in
reformulated gasoline due to environmental and public health reasons. 61 The Canadian investor
claimed that the ban interfered with, among other things, its market for methanol in California
and therefore was tantamount to an indirect expropriation. 62
The tribunal found that “as a matter of general international law, a non-discriminatory
regulation for a public purpose, which is enacted in accordance with due process, and, which

53
Ibid.
54
August Reinisch, ‘Expropriation’ in Peter Muchlinski, Federico Ortino and Christoph Schreurer (eds.),The Oxford
Handbook of International Investment Law, 407, 448. (Oxford University Press 2008).
55
Metalclad Corporation v the United Mexican States, ICSID Case No. ARB(AF)/97/1, Award 30 August 2000,
paras 87-89, www.italaw.com (accessed 27 October 2015).
56
Ibid., para. 50.
57
Ibid., para. 107.
58
Ibid., paras 83-86.
59
Ibid., para .107.
60
Ibid., para. 85.
61
Methanex Corporation v the United States of America, Award on Jurisdiction and Liability3 August 2005, Part II
Chapter D, summarized from paras 1 – 23, http://www.state.gov/documents/organization/51052.pdf, (accessed on 3
March 2015).
62
Ibid, para. 28.

138
affects, inter alios, a foreign investment is not deemed expropriatory and compensable unless
specific commitments had been given by the regulating government to the then putative foreign
investor contemplating investment that the government would refrain from such regulation.” 63
According to the tribunal, the California government made no such specific commitment to the
foreign investor. 64 Further, the ban was considered to be foreseeable since the foreign investor
was actively involved in regulatory process in California with respect to this business activity. 65
When one compare Metalclad and Methanex, the indicator of when legitimate expectation arises
is not entirely consistent. In Metalclad, the tribunal based the existence of government
representation on the fact that the investor could commence the construction of the landfill
before the local government required it to apply for a municipal construction permit. This
implies silent approval. On the other hand, Methanex requires specific commitment that the
government will not adopt such a measure, which is a rather high threshold. It seems unlikely
that government would commit that they will not regulate certain matters with regards to the
investment, except for the common stabilization clause on tax treatment. 66 Nevertheless, for
balancing purposes, this high threshold is more suitable compared to implied commitment or
assurance which can be too subjective to proof as found in Metalclad.
4.2 Carving out measures to protect the environment and public health from the scope of
indirect expropriation
A survey by the OECD finds that a small number of investment treaties precludes non-
discriminatory regulation as a basis of indirect expropriation claims. 67 The CETA and the EU –
Singapore Trade Agreement also adopt this approach where Annex X.11 of both agreements
provides as follows:
“for greater clarity, except in the rare circumstances when the impact of the measure or
series of measure is so severe in light of its purpose that it appears manifestly excessive,
nondiscriminatory measures or series of measure by a Party that are designed and
applied to protect legitimate public objectives such as public health, safety and the
environment, do not constitute indirect expropriation.”
To avoid liability for indirect expropriation, the government firstly has to prove its intent to
protect the environment and public health. The following part describes how tribunals have
found this intent.
Reliance to government’s judgement on the environmental and public health concern
Cases have shown that tribunals have given significant weight to government’s judgement to
prove existence of this intent, as was the case in Tecmed v. Mexico. The dispute arose from the
government’s rejection to the application to renew the foreign investor's landfill permit, followed

63
Ibid., Part IV - Chapter D, para. 7.
64
Ibid., para. 9.
65
Ibid., paras 9 and 10.
66
See Revere Copper v OPIC, Award 24 August 1978, where the host state had given explicit contractual
assurances not to increase taxes and royalties.
67
Gordon and Pohl, Environmental Concerns.

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by permanent closure of the landfill. 68 The government based the closure on environmental risks
related to the landfill operation – and that the investor had violated several conditions under its
existing permit. 69
The tribunal found that the internal communications between government agencies showed that
there was no environmental harm resulting from the foreign investor’s violation. 70 It further
found that the landfill did not display any health and environmental risk. 71 As such, the tribunal
identified the real reason behind the closure was community pressure; however it did not amount
to an emergency situation to justify the closure. 72
Even though the government was not successful in defending its position in this case, the case
shows that the tribunal did rely on government’s judgement on the existence of environmental
concern. This is an important signal sent by the tribunal. Tribunal firstly analyzed governmental
records and communication to find such concerns – and it found such concern did not exist.
Among other things, the tribunal noted that the Federal Environmental Protection Attorney’s
Office concluded that inspections to the landfill “have not shown that any indication that risks
for population’s health and environment may exist”. 73At the same time, this approach safeguards
foreign investor’s rights by ensuring that the measure was genuinely for environmental
protection and not a cover-up for other motives. One may observe that measure in
environmentally-sensitive activities, such as management of dangerous substances or hazardous
waste, may appear to be an environmental measure on its face. In fact, as shown in Tecmed, it
may not necessarily be “environmental”. The tribunal took an appropriate approach by exploring
governmental records, since it displayed trust to the government, while at the same time it
ensured that the investor’s rights were protected.
Further, in deciding whether a measure does aim to protect the environment and public health,
tribunal may be tasked to assess different scientific studies submitted by both the government
and the foreign investor. These studies may have conflicting result as to whether or not the
environmental and public health really exists. Similar as in Tecmed, the tribunal in Methanex
Corporation v. the United States of America gave significant weight government’s judgement on
the existence of environmental and public health concern, based on the scientific study. As
previously explained, the case concerned the California ban of MTBE in reformulated gasoline.
In introducing the ban, the government relied on a scientific report prepared by a university
which confirmed that MTBE posed significant risk of water contamination when gasoline leaked
from underground storage tanks and pipelines. 74 The foreign investor strongly contested the
report to be, among other things, “completely wrong” and submitted a handful other scientific
studies and expert statements to refute it. 75

68
TecnicasMedioambientales Tecmed S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2, Award
29 May 2003, paras 35-45, www.italaw.com (accessed 3 March 2015).
69
Ibid., paras 100-123.
70
Ibid., paras 124-127.
71
Ibid.
72
Ibid., paras 127 – 129.
73
Ibid., paras 124.
74
Methanex Corporation v. the United States of America, Part III - Chapter, para. 37.
75
Ibid., para. 101.

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From the outset, the tribunal made clear that it was not to assess whether the report was
scientifically more accurate than the others. 76 The focus was on whether or not the report was a
part of a political sham. 77 The tribunal found that it was not, since the report was subjected to
public hearings, testimony and peer-review. 78 It thus justified the environmental and public
concern behind the ban.
This is a proper approach. In assessing environmental and public health concern behind a
measure, tribunals should not act as a science court. It should not be their position to proactively
assess whether or not a measure is sound from scientific standpoint. It would be difficult, if not
impossible, to require government to have a 100% accurate science before start acting to address
environmental and public health concern. The risk can often times be too high. Governments
should be trusted and considered specialized in managing environmental and public health
protection – especially when they have conducted good faith-based scientific study. The
Methanex approach also serves a good balance, as it still safeguards the foreign investor by
requiring that the scientific report relied on by the government is available for peer review and
the public to comment.
In addition, tribunals may also seek assistance from technical expert in adjudicating a claim,
especially in cases concerning the environment and utilization of natural resources. Technical
experts have played a role in international adjudication, most obvious in cases before the
International Court of Justice. 79A new development showed by an ongoing investment treaty
arbitration case, Perenco v. Ecuador. In this case, the tribunal decided to appoint its own expert
to assess counterclaim by Ecuador that the investor has caused environmental contamination. 80
While this displays prudence by the tribunal, several questions can be raised. To name a few,
how should the expert be appointed and how should the tribunal evaluate evidential weight of the
expert opinion.
The roles of environmental treaty
Environmental treaties have shown a role in the adjudication of indirect expropriation claims.
Firstly, they provide a high-level consensus of certain environmental and public health concern,
for instance climate change or the danger of smoking. Therefore, when it comes to addressing
indirect expropriation claims, government does not need to conduct scientific study to proof its
intent to protect the environment and public health, which can be burdensome. Secondly,
environmental treaties may also provide guidelines, recommendations or requirements on how to
achieve certain environmental goal. Hence, they can be a direct inspiration behind a specific
measure. 81

76
Ibid.
77
Ibid.
78
Ibid.
79
See, among others, International Court of Justice, Case Concerning Pulp Mills in the River Uruguay (Argentina v.
Uruguay) Judgment 20 April 2010.
80
Perenco Ecuador Limited v. the Republic of Ecuador, ICSID Case No. ARB/08/6, Interim Decision on
Environmental Counterclaim11 August 2015, para. 611.
81
The tribunal in Marion Unglaube v. Costa Rica, ICSID Case No. ARB/08/1, Award 16 May 2012,
www.italaw.com (accessed 27 October 2015) also briefly mentioned an environmental treaty as a background
behind a measure. The case concerned formal expropriation of foreign investor’s land since the government
intended to use the land to build a national park for the protection of a certain species of sea turtle. The government

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Chemtura Corp. v. Canada is a case where the tribunal had referred to an environmental treaty to
find an environmental and public health concern. As previously explained, the case concerned an
eventual phase-out of lindane, a pesticide, which triggered an indirect expropriation claim by the
foreign investor. From the outset, the tribunal asserted that it was not in the position to second-
guess the decision of highly specialized national regulatory agencies. 82 In addition, it became
more convinced of the environmental and public health concern behind the ban as lindane was
included in the list of chemicals designated for elimination under the Stockholm Convention on
Persistent Organic Pollutants. 83 According to the tribunal, there was a valid environmental and
public health concern arising from the use of lindane. 84 This case was an example of how an
environmental treaty may support an environmental cause behind a specific measure.
However, it can also be the case that an investment treaty limits the application of an
environmental treaty when it comes to the adjudication of claims. One example is the NAFTA
and Basel Convention on the Control of Transboundary Movements of Hazardous waste and
their Disposal (“the Basel Convention”) as displayed in S.D Myers v. Canada. As previously
explained, the case concerned a temporary export ban of PCB waste from Canada to the United
States. It is important to note that the tribunal in this case did not find that the ban constitute an
indirect expropriation as the first test, which was impact of the measure, was not met. However,
it is interesting to see how the case shows the relationship between the two international regimes.
Canada argued that the export ban of PCB waste was required by the Basel Convention, which it
is a party to. The Basel Convention, among other things, provides commitment of State parties to
“ensure that the transboundary movement of hazardous waste be reduced to a minimum...” 85 On
the other and, the tribunal took note of the Transboundary Agreement between the United States
and Canada which includes cross-border movements of hazardous waste to achieve the most
cost-effective and environmentally sound solution to hazardous waste management. The Basel
Convention specifically allows State parties to enter into these kinds of agreements. The tribunal
therefore held that the Basel Convention did not justify the ban. 86
Environmental treaties can be strong support to measures to protect the environment and public
health. Moreover, the cases show that investment regime does not operate in vacuum, but it
works in harmony with other fields of international law, in this case is international
environmental law. Tribunals have, in a couple of cases, sufficiently referred to these treaties
when adjudicating indirect expropriation claims.
The question for future treaty is how these two fields of international law will interact with one
another when a value-depriving measure is adopted based on a specific obligation under
environmental treaty. This question has not been answered under the above cases as the treaties
relied upon by the tribunals provide only broad obligations. In fact, environmental treaties are
often times drafted in an open-ended, vague and imprecise manner, essentially leaving the State

argued that the measure was backed up by the Inter-American Convention for the Protection and Conservation of
Sea Turtles. However, as the environmental motive itself was not contested by the investor, there was no
explanation on the interaction between the two regimes.
82
Chemtura Corporation v. Government of Canada, para. 134.
83
Ibid., paras 135-136.
84
Ibid., para. 138.
85
S.D Myers v. Government of Canada, para. 211.
86
Ibid., paras 211 – 215.

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parties to choose the means to achieve a certain environmental goal in the treaty. Which treaty
should win? 87
One of the highly-discussed environmental regime is the climate change regime. If a host state
adopts a measure to reduce greenhouse gas emission, will it also have to compensate foreign
investor if it results in indirect expropriation? A risk is that the indirect expropriation provision
may then significantly hamper the efforts to combat climate change globally. Should investment
treaty then explicitly carve out the climate change regime from the scope of indirect
expropriation? The indirect expropriation provision in the CETA and EU – Singapore Trade
Agreement is sufficient in the sense that it intends to protect the environment and public health is
not enough to avoid liability to compensate. The character of the measure also matters, in that it
should not be manifestly excessive in light of its purpose and discriminatory, as explained below.
The lack of interpretation of “manifestly excessive”
In cases which arose due to measures to protect the environment and public health, the wording
“manifestly excessive” has not been used - however it somehow infers a requirement of
proportionality. The proportionality test has had a limited application in investment treaty
arbitration. Tecmed v Mexico was the first case where the tribunal explicitly employed
proportionality test, an approach commonly used by the European Court of Human Rights when
adjudicating claims of deprivation of private property. The indirect expropriation claim arose
from the government’s rejection to renew the operating license for the foreign investor’s landfill
followed by permanent closure of the landfill, citing environmental reasons. 88
After finding that the impact of the permit rejection amounted to an expropriation, 89 the tribunal
assessed the character of the measure, whether or not it was proportional in light of the public
interest protected and the private interest impacted. As the tribunal put it: “whether such actions
or measures [were] proportional to the public interest presumably protected thereby and to the
protection legally granted to investments, taking into account the significance of such impact has
a key role upon deciding the proportionality”. 90
The tribunal mirrored the approach of the European Court of Human Rights in the Case of James
and Others as follows: “not only must a measure depriving a person of his property pursue, on
the facts as well as in principle, a legitimate aim (in the public interest), but there must also be a
reasonable relationship of proportionality between the means employed and the aim sought to be
realized…(…). The requisite balance will not be found if the person concerned has had to bear
an “individual excessive burden” (…)The Court considers that a measure must be both
appropriate for achieving its aim and not disproportionate thereto.” 91

87
This is especially considering that Art. 38 of Statute of International Court of Justice on the sources of
international law does not provide hierarchy between sources. Nevertheless, some general rules made by custom
have special legal forces, the so-called jus cogens.
88
TecnicasMedioambientalesTecmed S.A. v. The United Mexican States.
89
Ibid., para. 117.
90
Ibid., para. 122.
91
Ibid.

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Applying the proportionality test, the tribunal in Tecmed found evidence was not supportive to
the existence of environmental concern. Therefore, it considered thatthe rejection of permit and
closure of the landfill on environmental ground. 92
Some scholars considered Tecmed to be controversial as the tribunal “imported” the approach
from European Court of Human Rights, which posed methodological question. Further, the
application of the proportionality test in investment treaty arbitration after Tecmed remains
limited. When we compare the Tecmed approach and the CETA and the EU-Singapore Trade
Agreement, the latter ones are more limited since it only requires the measure to be manifestly
excessive “in light of its purpose”. In Tecmed, in addition to be proportional in light of its
purpose, the measure should also be proportional to “the protection legally granted to the
investment”.
The requirement of nondiscrimination
Another element which precludes a measure to protect the environment and public health from
the scope of indirect expropriation is nondiscrimination. As a matter of principle, a foreign
investor should not expect to be compensated for a measure of general application. 93 Tribunals
have held that discrimination existed when government has discriminated against foreign
investor on the basis of their nationality. 94
However, the fact of the cases are not always as straight-forward to indicate that difference of
treatment arose from nationalities. The difference of treatment may also arise because of certain
environmental and public health concerns related to a specific investment activity. Therefore, it
is interesting to see how discrimination has been interpreted within this context. The assessment
of discrimination argument in the following cases was made not within the context indirect
expropriation claims, but they were made in the assessment of violation of most favored-nation
treatment and fair and equitable treatment standard of protection. These two standards of
protection also embody the obligation to provide nondiscriminatory treatment.
A particularly interesting case is Parkerings-Compagniet AS v. Republic of Lithuania. In this
case, the city rejected the foreign investor’s application to build parking facilities in the Old
Town of Vilnius since this area was a culturally protected area as designated by the UNESCO. 95
The investor pointed out that another investor, a Dutch investor, was allowed to build parking
facilities in the Old Town, and therefore it claimed that the rejection was discriminatory. 96
The tribunal answered that the essential condition of finding a discrimination is the existence of a
different treatment accorded to another investor in a similar situation. It was established that the
foreign investor and the Dutch investor were not in similar situation as there was a justification

92
Ibid.,para. 149.
93
Dolzer and Schreurer, Principles of International Investment Law, 120.
94
Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment, 374,
(Kluwer Law International 2009),
http://www.italaw.com/documents/NewcombeandParadellLawandPracticeofInvestmentTreaties-Chapter1.pdf
(accessed 27 October 2015).
95
ParkeringCompagniet-AS v. Republic of Lithuania, ICSID Arbitration Case No. ARB/05/8,Award 11 September
2007, paras 363 – 365 and 382,http://www.italaw.com/sites/default/files/case-documents/ita0619.pdf(22 October
2015).
96
Ibid., para s 394 – 395.

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to the difference of treatment. The foreign investor’s project in the Old Town extended
significantly near the culturally sensitive area of the Cathedral. Therefore the tribunal reasoned
that the refusal of the project was justified by historical and archeological conservation and
environmental protection reasons. 97
In addition, the existence of discrimination also mattered in the adjudication of fair and equitable
treatment standard claims. In Glamis, the foreign investor claimed that the denial of its mining
project on environmental and cultural protection ground was discriminatory as, according to the
investor, other projects with significant and similar cultural characteristics were approved. 98
Government also did not require complete backfilling for such other projects. The tribunal
reasoned that there was no causal focus on the nationality of the investor and therefore the
investor’s project was not a subject to discriminatory targeting. 99
From the above it appears that discrimination focuses on nationality-based discrimination.
Therefore, the indirect expropriation provision does not hamper the government to impose
different environmental requirements to different investor in the same type of investment
activity, should the particularities of the project require this.

5. Contract claims and indirect expropriation

Indirect expropriation claim may arise from termination or breach of investor-State contract.
This is a direct contract between a government and a foreign investor which usually provides an
assignment of a specific investment project for a certain period of time, tax treatment and
provision of subsidies. The contract may also regulate specific obligation on the part of the
investor to secure financing or location for the project. It can be common in large investment
projects, such as those in the mining, energy or electricity sectors, without which an investment
cannot take place. 100As such, a unilateral termination of the contract by government may entirely
cancel out the investment project, hence giving rise to indirect expropriation claims.
The reason behind a contract termination can be public in nature, for instance protection of the
environment and public health. It can also be contractual, which is a breach of contract on the
part of the foreign investor. Tribunals have held that the decisive factor is whether the
government acted in an official and governmental capacity. An act of public authority is
needed. 101 In this respect, the tribunal in Suez v. Argentina sets the basic principle: 102

97
Ibid., paras 396 - 397.
98
Glamis Gold Ltd. v. United States of America, para. 645.
99
Ibid., para. 828.
100
Nathalie Bernasconi-Osterwalder, Aaron Cosbey, Lise Johnson and Damon Vis-Dunbar, Investment Treaties and
Why They Matter for Sustainable Development, International Institute for Sustainable Development, 3 (2012),
https://www.iisd.org/sites/default/files/pdf/2011/investment_treaties_why_they_matter_sd.pdf (accessed 25 October
2015).
101
See, among others, Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/3, Decision on
Jurisdiction 22 April 2005, para. 281, www.italaw.com (accessed 26 October 2015); Bayindir Insaat Turizm Ticaret
Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction dated 14
November 2005, para. 257, www.italaw.com (accessed 26 October 2015); Azurix Corp. v. The Argentine Republic,
ICSID Case No. ARB/01/12, Award 14 July 2006, para. 315, www.italaw.com (accessed 26 October 2015).
102
Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A. v. the Argentine Republic, ICSID
Case No. ARB/03/19, Decision on Liability, para. 153, www.italaw.com (accessed 23 March 2015).

145
 “Tribunals have made a distinction between acta iure imperii and acta iure gestionis, that
is to say, actions by a State in exercise of its sovereign powers and actions of a State as a
contracting party. It is the use by a State of its sovereign powers that gives rise to treaty
breaches, while actions as a contracting party merely give rise to contract claims not
ordinarily covered by an investment treaty.”
Vigotop v. Hungary presents an interesting new development in the adjudication of indirect
expropriation claim. The case concerned a termination of a concession contract for casino project
between a foreign investor and the Hungarian government. 103 The new government adopted a
new environmental and tourism policy which cancelled out the casino project, which triggered
indirect expropriation claim by the investor. 104 The tribunal reasoned that to establish that the
termination of the concession contract was expropriatory, the investor must prove two things.
The first was that the government acted in its sovereign capacity, such as for non-contractual
public policy reason. 105 The second was that the government did not legitimately terminate the
concession contract based on a contractual ground. 106 Both factors had to be fulfilled.
In this case, the government terminated the concession contract partly based on a public policy
reason, which was the new environmental and touristic policy. 107 However, the government also
had a legitimate contractual basis to terminate it, which was the failure on the part of the investor
to secure site for the project construction, a material obligation under the concession
contract. 108Therefore, the termination did not establish an indirect expropriation. As a contrast,
the tribunal went on to say that had the investor fulfilled this contractual obligation, any
termination at that point may well have been expropriatory. In conclusion, when termination of a
contract is for contractual reason, even when it was also motivated by protection of the
environment and public health concern, an expropriation is deemed to have not occurred.
The CETA and EU-Singapore Trade Agreement do not specifically address the difference
between sovereign act and an act as mere party to a contract. The future trade agreement may
add the word “sovereign act” – to provide more certainty and also to broaden the policy space of
governments. It may also avoid the situation that foreign investors always bring a claim to
investment treaty arbitration due to contract termination even if the termination was a
consequence of the investor’s own breach.

6. Concluding remarks
The concerns and criticisms of investment law regime because of Phillip Morris v. Australia and
Vattenfall v. Germany are not to be underestimated. However, critics should not be one-sided as
the protection of foreign investment should also be taken into account, otherwise the whole
regime will lose its ultimate goal. The European Union has tried to address this concern in the

103
Vigotop Limited v Hungary, ICSID Case No. ARB/11/22, Award 1 October 2014, paras 192-193,
www.italaw.com (accessed 23 March 2015).
104
Ibid., paras 417 and 422-440.
105
Ibid., paras 634.
106
Ibid.
107
Ibid.
108
Ibid.

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CETA and the EU – Singapore Trade Agreement, among others by providing a more specified
indirect expropriation provision. The provision carves out non-discriminatory measure to protect
the environmental and public health from the scope of indirect expropriation to the extent it is
not manifestly excessive.
Cases in investment treaty arbitration show that tribunals have interpreted the provision so as to
giving a sufficient policy space for governments to regulate for environmental and public health
protection. Firstly, tribunals have used a high threshold of economic impact of a measure. They
have in numerous occasions clarified that when a measure was a mere restriction of rights or a
lesser interference, it was not sufficient to establish an indirect expropriation. Chemtura has even
shown that when an impact of a measure reduced the estimated profit of an investment for more
than 50%, it still does not constitute an indirect expropriation. Secondly, tribunals have relied on
government’s judgement in the existence of environmental and public health concern behind a
measure
An issue remains unclear is whether or not it is desirable to include the existence of legitimate
expectation on the part of foreign investor as a factor in establishing indirect expropriation. If
legitimate expectation would be included as a criteria in indirect expropriation provisions in
future investment treaties, its scope should be clarified. An investor is better placed to diligently
pursue whether or not a specific assurance from the government is reasonable to rise a legitimate
expectation on its behalf. They should be expected to assess whether or not the representation by
the government is made according to the law and the nuance and situation at which the
representation was made. It can also be regulated that legitimate expectation must arise only
from a specific assurance in the form of written instruments, such as a permit or a contract with
government for a certain period. The 2009 ASEAN Comprehensive Investment Agreement can
be an inspiration. It significantly limits the scope of legitimate expectation as follows:
“(…) the determination of whether an action or series of actions by a Member State, in a
specific fact situation, constitutes an expropriation requires a case-by-case, fact-based
inquiry that considers, among other factors:
Whether the government’s action breaches the government’s prior binding written
commitment to the investor whether by contract, license or other legal documents.”
Another interesting aspect worth exploring is the relationship between investment treaty and
environmental treaty which has surfaced in a couple of cases. An environmental treaty for
instance may suggest elimination of certain chemical or suggest that certain environmentally-
sensitive activities be reduced to a minimum. This background may assist tribunal in establishing
a valid environmental reason behind a measure.
When it comes to balancing States’ obligation between the two regimes, little has been shown by
the decided cases above. The reason is that such cases did not concern a strict and specific
obligation under environmental treaty. If an environmental treaty expressly requires a State to
take a specific action to protect the environment and doing so would deprive the investor of its
investment, would State be able to avoid the liability to compensate? This is precisely the
question in Phillip Morris v. Australia as Australia enacted the plain packaging regulation to
implement the recommendation of the World Health Organization under the Framework

147
Convention on Tobacco Control. Which one should prevail? Intellectual property rights of
individuals or protection of public health? Both are protected under international law.
The above boils down to a sophisticated question of international law, which is conflict of
norms. Vienna Convention on Law Treaties does not provide an answer on which source of
international law prevails over another, other than the firm position of jus cogens. In absence of
guidelines in Vienna Convention, the future investment treaty should clearly clarify this issue.
One way to do it is by an express exception that a measure shall not constitute an indirect
expropriation if it is introduced to implement a certain environmental treaty in a non-
discriminatory way. The NAFTA’s approach can also be useful, it requires states parties, in
complying with an obligation under a certain environmental treaty, to choose a measure that is
less restrictive to trade. In choosing the former or the latter approach, negotiators may
contemplate on which environmental treaties to be prioritized based on their importance and its
specific obligations.

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