The European Court of Justice declared the Investor-State Dispute Settlement (ISDS) system of the CETA to be compatible with EU primary law.
On April 30th, 2019, the European Court of Justice published its Opinion 1/17 in response to a request submitted by the Kingdom of Belgium on September 7th, 2017. The topic of the request and respective opinion has been the compatibility of Section F of Chapter Eight of the Comprehensive Economic and Trade Agreement, better known as CETA, with the Treaties of the European Union. Section F of Chapter Eight establishes a tribunal as well as an appellate body to settle disputes concerning non-discriminatory treatment or investment protection between investors and parties of the CETA. Both judicial bodies are planned to be superseded by a yet to be established multilateral investment tribunal as well as an appellate mechanism in the future.
The ECJ’s opinion on the compatibility of the agreement with the Treaties has been long awaited. Not only because the CETA had already been signed years ago in October 2016 and has been applied temporarily to some extent since 2017, but also because recent opinions and judgements of the ECJ opposed comparable tribunals. Since, according to Article 218 (11) TFEU, agreements concluded by the EU cannot enter into force if the Court finds them not compatible with the Treaties, any negative outcome in this case would have meant further troublesome re-negotiations of the CETA.
Although it has been repeatedly stated by the Court that the creation of an international dispute settlement mechanism would not per se contradict the Treaties, none of the mechanism established so far fulfilled its criteria of not interfering with the autonomy of the EU legal order. In the recent past, the ECJ rejected tribunals under international law in three cases starting with the negative assessment of the draft agreement on a unified patent litigation system, moving on to the accession to the European Charter of Human Rights by the EU and ending last year with more or less prohibiting investment dispute settlement by tribunals in the EU as a whole in its Achmea-judgement.
The point that has been made very clear by the Court in all of those cases was that it holds exclusive jurisdiction over the definitive interpretation of EU law. Conferring any powers to apply or interpret European Union law upon an international court or tribunal which then would be outside the judicial framework of the EU would not be compliant with the law of the treaties. In the opinion of the ECJ, this would deprive courts of Member States of their powers in relation to the interpretation and application of European Union law and of course also the Court itself of its power as the ultimate interpreter of this law. A decisive criterion in this regard has been the scope of law to apply. While the tribunal of the Achmea-case had to take into account the law in force of the contracting parties as well as any agreements between them, the CETA explicitly limits its tribunal’s scope of interpretation. The ISDS tribunal may consider domestic law of a party and thus also EU law only as a matter of fact. Its meaning given to domestic law will furthermore not be binding in any form for the courts or authorities of the member state of the EU. According to the ECJ’s interpretation of the CETA, the tribunal can thus only apply and interpret the law of the agreement itself and other rules and principles of international law between the parties.
The second aspect of this autonomy of the EU legal order relates to its power to regulate. If the EU had to amend or withdraw any of its legislation because of an assessment or judgement made by the tribunal, which stands outside of the judicial system of the EU, the capacity of the Union to operate autonomously would be undermined. Matters in question would inter alia be public safety, protection of health or environment and fundamental rights. However, the CETA itself reaffirms in its Article 8.9 the right of the parties of the agreement to achieve the abovementioned legitimate policy objectives. According to the ECJ, this means that the tribunal has no jurisdiction to call into question any democratic decisions within the Union or a member state when weighing their public interest against those of an individual foreign investor.
Further aspects addressed in the ECJ’s opinion have been the compatibility of the ISDS with fundamental principals of the EU like equal treatment, effectiveness and the right of access to an independent tribunal. While it may not be too disquieting for European investors that they are not able to bring their claims against EU member states before the ISDS tribunal of the CETA, especially the financial accessibility for SME may be a determinant factor for the future importance the tribunal. It has to be noted that the ECJ did not find the tribunal accessible for SME per se. It rather concluded that none of the provisions in Section F or Chapter Eight contain any legally binding commitments relating to the financial accessibility for smaller investors. The fact that nevertheless ensured sufficient accessibility was that the Commission and the Council had given a commitment to implement supplemental rules to alleviate the financial burden of proceedings before the tribunal in accordance to Article 8.39.6 of the CETA. This was found sufficient to guarantee accessibility for smaller investors by the Court.
In brief, there are a few major differences of the ISDS tribunal established by the CETA compared to previous ones. While the Achmea-judgement concerned an agreement between Member States, the CETA is an agreement between the EU and a non-Member State. Furthermore, its scope of applicable law is limited to the agreement alone meaning domestic and EU law have to be treated as a matter of fact and democratic decisions within the Union or a Member State cannot be called into question. Of course, it remains open whether the tribunal will interpret the agreement in the same way as the ECJ and how exactly the EU will ensure financial accessibility to the tribunal.