European Law and Investment Treaties: Exploring the Grey Areas

1. European Law and Investment Treaties:Exploring the Grey Areas Investment Arbitration under Intra-EU BITs Prof. Dr. Christian Tietje, LL.M. Transnational Economic Law Research Center University Halle-Wittenberg tietje@jura.uni-halle.de London, 4 December 2008

2. Outline • The Debate: Background • The Legal Issues • Applicable Law: Inevitably Different Perspectives • Public International Law as Applicable Law • EC law is not public international law • MS have full competence to conclude BITs • Conflicts between Intra-EU BITs and EC Law are only a matter of EC Law • Consequence: Necessity of disconnection clause • Assuming arguendo EC Law is Applicable • Art. 59, 30 VCLT? • Conflicts between EC Law and BITs? • Substantial provisions • Conflicting jurisdiction ECJ / Tribunal

3. The Debate: Background (1) • 191 BITs between EU Member States • Mostly between „old“ and „new“ Member States • Reason: BITs concluded after 1989 in order to promote economic relations after opening up of Eastern Europe • Eastern Sugar B.V. (Netherlands) v. The Czech Republic, UNCITRAL ad hoc Arbitration, SCC No. 088/2004, Partial Award of 27 March 2007 • Czech Republic argued against jurisdiction because of EC law • Quotes from internal EU Commission documents

4. The Debate: Background (2) • EU Commission, INTRA-EU BILATERAL INVESTMENT TREATIES (Note for the Alternates of the Economic and Financial Committee) 2007 • “[…] Community law, including the jurisdiction of the Court of Justice, prevails from the date of accession. However, the transitional situation until the BITs are formally terminated may result in complex questions of interpretation with regard to jurisdiction in particularly with regard to pending arbitration procedures but also in relation to rules which provide for an extended application of the agreement in a certain period after termination.”

5. The Debate: Background (3) • EU Economic and Financial Committee [see Art. 114 (2) EC Treaty], Annual Report to the Commission and the Council on the Movement of Capital and the Freedom of Payments, 23 November 2007 • “15. Most Member States do not share the Commission's concern about arbitration risks and discriminatory treatment of investors. A clear majority of Member States prefers to maintain the existing agreements, in particular with view to the provisions on expropriation, compensation, protection of investments and investor-to-state dispute settlement. Still, a few Member States are seeking a solution for this issue. The EFC takes note that it remains the responsibility of Member States that have been informed of the Commission's concerns to address the issue through bilateral actions and therefore invites Member States to do what is necessary in this regard. The EFC will continue monitoring developments in this respect and will come back on this issue in its next report.”

6. Legal Issues (1)Applicable Law: Inevitably Different Perspectives • EC law as applicable law • Supremacy of EC law • Even if no EC competence, MS are obliged to exercise remaining competences in compliance with EC law, namely fundamental freedoms • Public international law as applicable law in investment arbitration • Jurisdiction of Tribunal • “The question of whether the parties have effectively expressed their consent to ICSID jurisdiction is not to be answered by reference to national law. It is governed by international law as set out in Article 25(1) of the ICSID Convention” (CSOB v. Slovakia, ICSID Case No. ARB/97/4, Decision on Jurisdiction of 24 May 1999, para. 35) • Merits • If BIT is bases for jurisdiction, in most cases BIT is also applicable law concering merits • EC law or national law applicable only as „facts“, i.e. „preliminary“ or „incidental“ questions

7. Legal Issues (2)Public International Law as Applicable Law • EC Law as public international law? • Original EC Treaties are public international law treaties • However • “By Contrast with Ordinary International Treaties, the EEC Treaty has created its own legal system …” (ECJ, Case 6/64, Judgment of 15 July 1964 – Flaminio Costa v E.N.E.L.) • Primary EC law is superior to public international law (see Art. 300 (6) ECT) • Public international law may become an „integral part of community law“ (ECJ, Case 181/73, Judgment of 30 April 1974 – Haegeman)

8. Legal Issues (3)Public International Law as Applicable Law • EC Law as public international law? • EC Law considers itself not to be public international law • For a Tribunal EC law is thus the same as domestic law of a State • Consider also • Differentiation between • Limited competences of EC and remaining competences of MS (Art. 5 (1) ECT) • EC law obligation to act in conformity with EC law in areas of remaining MS competences

9. Legal Issues (4)Public International Law as Applicable Law • Limited competences of EC and remaining competences of MS (Art. 5 (1) ECT) • If no EC competence in a specific subject area, MS remain „full subjects of international law“, thus they are capable to conclude treaties inter-se • Recent Example: „Convention between the Kingdom of Belgium, the Federal Republic of Germany, the Kingdom of Spain, the French Republic, the Grand Duchy of Luxembourg, the Kingdom of the Netherlands and the Republic of Austria on the stepping up of cross-border cooperation, particularly in combating terrorism, cross-border crime and illegal migration”, signed in Prüm (Germany) on 27 May 2005. • External: EC has (currently) not BIT competence with regard to third countries (only EC competence concerning admission of FDI) • Internal: Art. 43, 56 ECT (freedom of establishment and free movement of capital and payments) are not exclusive EC competences

10. Legal Issues (5)Public International Law as Applicable Law • Situation is similar to double taxation conventions (DTAs) of MS • “It must be pointed out in that regard that, in the absence of any unifying or harmonising Community measures, Member States retain the power to define, by treaty or unilaterally, the criteria for allocating their powers of taxation, particularly with a view to eliminating double taxation. … [I]n exercising the powers of taxation allocated under them, the Member States are obliged to comply with the rules of Community law” (ECJ, Case C-524/04, Judgment of 13 March 2007, para. 49, 53 - Test Claimants)

11. Legal Issues (6)Public International Law as Applicable Law • Don‘t get confused: • “The Court has consistently held … that, in matters governed by the EEC Treaty, that Treaty takes precedence over agreements concluded between Member States before its entry into force.” (ECJ, Case 235/87, Judgment of 27 September 1988, para. 22 - Annunziata Matteucci) • This is true from the perspective of EC law • However, EC law does not effect situation under public international law

12. Legal Issues (7)Public International Law as Applicable Law • Consequences (1): • Intra-EU BITs are within competence of MS • EC law and public international law are separated legal orders • Thus, from the perspective of international law the validity of intra-EU BITs can not be affected by EC law • Art. 59 VCLT (Termination or suspension of the operation of a treaty implied by conclusion of a later treaty) is not applicable as there are no “two” treaties • Art. 30 (3) VCLT (the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty) is not applicable for the same reason • Incompatibilities are exclusively a matter of EC law (MS may violate EC law while acting under a BIT) but not a concern of Arbitral Tribunal

13. Legal Issues (8)Public International Law as Applicable Law • Consequences (2): • Necessity (from perspective of international law, not EC law) of disconnection clause in inter se agreements between MS • Example Art. 47 (1) Prüm-Convention “The provisions of this Convention shall apply only in so far as they are compatible with European Union law. Should the European Union in future introduce arrangements affecting the scope of this Convention, European Union law shall take precedence in applying the relevant provisions of this Convention.”

14. Legal Issues (9) Assuming arguendo EC Law is Applicable • Art. 59 VCLT (termination/suspension) • „same subject matter“ • BIT – treatment standards, expropriation and arbitration • EC • Freedom of establishment (Art. 43 ECT) and free movement of capital and payments (Art. 56 ECT) do probably provide same standards as BIT treatment standards • However • expropriation explicitly not EC competence (Art. 295 ECT) • No possibility in EC law for investor to directly sue MS

15. Legal Issues (10) Assuming arguendo EC Law is Applicable • Art. 59 VCLT • „parties intended that the matter should be governed by [the later] treaty“ (lit. a) • MS do not agree (see above) • “the provisions of the later treaty are so far incompatible with those of the earlier one that the two treaties are not capable of being applied at the same time” • (-) as EC law obligations of MS remain uneffected by BIT • Art. 30 (3) VCLT (lex specialis application) • Same problems as above

16. Legal Issues (11) Assuming arguendo EC Law is Applicable • Conflict between EC law and BIT? • Discrimination of EU citizens (Art. 12 ECT) • Because rights under BIT are only available for own nationals („exporting“ perspective) • “As regards, specifically, the refusal to grant to permanent establishments of non-resident companies the international group relief provided for by a bilateral agreement, concluded in order to prevent double taxation, finds no justification in the fact that the Member States are at liberty, in the framework of such agreements, to determine the connecting factors for the purposes of allocating powers of taxation as between themselves. As far as the exercise of the power of taxation so allocated is concerned, the Member States nevertheless may not disregard Community rules, under which the national treatment principle requires a Member State which is party to the agreement to grant to permanent establishments of non-resident companies the advantages provided for thereunder on the same conditions as those which apply to resident companies.” (ECJ, Case C-307/97, Judgment of 21 September 1999 - Saint-Gobain) • However, under BIT, rights are granted not by home state, but by host state

17. Legal Issues (12) Assuming arguendo EC Law is Applicable • Conflict between EC law and BIT? • Discrimination of EU citizens (Art. 12 ECT) • Because rights under BIT are only granted to nationals of one other MS („importing“ perspective) • “Articles 56 EC and 58 EC do not preclude a rule laid down by a bilateral convention for the avoidance of double taxation which states that natural persons resident in one of the two States are entitled in the other to the personal allowances which are granted by it to its own residents from not being extended to residents of a Member State which is not party to that convention. The fact that the reciprocal rights and obligations flowing from such a convention apply only to persons resident in one of the two Contracting Member States is an inherent consequence of bilateral double taxation conventions.” (ECJ, Case C-376/03, Judgment of 5 July 2005, - D) • = No MFN treatment in EC law (disputed)

18. Legal Issues (13) Assuming arguendo EC Law is Applicable • Conflict between EC law and BIT? • Conflicting jurisdiction ECJ/Investment Tribunal? • Art. 292 ECT (ECJ, Case C-459/03, Commission/Ireland, Judgment of 30 May 2006 - MOX plant) • Not applicable • Refers exclusively to disputes between MS • Refers only to procedures as provided for in ECT • = No Investor-State procedure in ECT

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