Advocate General finds that CETA’s “Investment Court System” is compatible with EU law

One of the Advocates General to the Court of Justice of the European Union, Advocate General Bot, has issued an opinion confirming that the mechanism for the settlement of disputes between investors and states provided for in the Comprehensive Economic and Trade Agreement  between the EU and Canada (the CETA) is compatible with European Union law.

We discuss the content of the Advocate General’s opinion on our new blog piece, published on our Public International Law blog here.

For further information please contact Andrew Cannon, Partner, Hannah Ambrose, Senior Associate, Vanessa Naish, Professional Support Consultant, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852
Hannah Ambrose
Hannah Ambrose
Senior Associate
+44 20 7466 7585
Vanessa Naish
Vanessa Naish
Professional Support Consultant
+44 20 7466 2112
Rebecca Warder
Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418

EU and Japan formally sign economic partnership agreement

On 17 July 2018, the EU-Japan Economic Partnership Agreement (EPA) was formally signed during the EU-Japan summit in Tokyo.  The EPA – the largest free trade agreement ever negotiated by the EU – has been years in the making and took significant time and effort to get to this stage. You can read more about the steps to date in our earlier post here.

The EPA aims to remove trade barriers between the EU and Japan, making it easier for firms to sell goods and services between the two economies. It will create the world’s largest open trade zone, covering nearly a third of global GDP, almost 40 percent of world trade and more than 600 million people.

The partnership also goes beyond trade, with wider social and political implications.  Given its scope of coverage, the EPA may encourage the development of global trade rules consistent with EU and Japanese standards.  The EPA also sends a powerful signal that two of the world’s largest economies explicitly reject trade protectionism. Continue reading

State to state dispute resolution in the UK Government’s White Paper: arbitration with a potential role for the CJEU

The White Paper published yesterday, “The Future Relationship between the United Kingdom and the European Union”, includes the UK Government’s proposal for the resolution of disputes between the UK and the EU under what the UK Government views as an “Association Agreement”. This Association Agreement would form the institutional framework for the relationship, with a number of separate agreements (the majority falling within this institutional framework), each covering different elements of economic, security and cross-cutting cooperation.

Under the institutional framework there would be a UK-EU Governing Body, and under that Governing Body and answerable to it, a Joint Committee which would be responsible for the effective and efficient administration of the agreements. The Joint Committee, “through regular and structured dialogue”, would seek to prevent disputes arising, or otherwise play a role in resolving them.

The White Paper emphasises the potential for resolution of disputes through dialogue and non-formal means. However, it also outlines a potential dispute resolution process to ensure that the obligations contained in the institutional framework and agreements can be enforced if needed.

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EU Council publishes Negotiating Directives for Convention establishing a Multilateral Investment Court: no real surprises but a couple of gaps

On 20 March, 2018 the Council of the European Union published negotiating directives dated 1 March 2018 authorizing the European Commission to negotiate a convention establishing a multilateral court for the settlement of investment disputes between investors and states. Whilst the detailed characteristics of the proposed multilateral investment court (the MIC) will be developed during the course of the negotiations, the Negotiating Directives give considerable indication of the EU’s intentions as to the MIC’s features.

The Negotiating Directives have their origin in the Commission’s Recommendation for a Council Decision authorising the opening of negotiations for a Convention establishing a multilateral investment court, published in September 2017.  This included a recommendation that negotiating directives be drawn up and made public immediately after their adoption.  The Commission has since commented that “the EU’s new policy on investment is fundamentally based on transparency” and that publication of the Negotiating Directives allows the EU “to continue to work with like-minded partners around the globe” towards creating a MIC, “knowing that EU citizens are fully informed of [its] negotiating instructions”.

Whilst the EU introduced its intention to move towards a multilateral system in a Concept Paper in 2015 (see our blog post here), the Commission’s Recommendation itself came shortly after UNCITRAL indicated in its 50th Session in July 2017 that UNCITRAL Working Group III would consider possible reform of investor-state dispute settlement.  This work began in the Working Group’s 34th session in November 2017, with its next session due to take place on 23 to 27 April 2018.  It will therefore be seen as no coincidence that the EU has chosen to publish these Negotiating Directives at this stage, and they will set the framework for the participation of the EU and its Member States, as further considered below.  The EU has also submitted a paper to the Working Group in advance of its next session highlighting its concerns over the current system of ISDS.

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Belgium asks for the CJEU’s opinion on the compatibility of the Investment Court System with European Law

On 6 September 2017 the Belgian Deputy Prime Minister and Minister of Foreign Affairs Didier Reynders submitted a request from Belgium to the Court of Justice of the European Union for an opinion on the compatibility of the Investment Court System (ICS) with the European Treaties.  The Belgian government has made the request in recognition of the concerns raised by the regional assembly of Wallonia about the ICS when it was considering whether or not to sign the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada.

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Enforcement and dispute resolution under the Withdrawal Agreement and any future relationship agreement: no role for the CJEU….or is there?

On its face, the thrust of the UK Government’s Future Partnership Paper on Enforcement and Dispute Resolution (the Paper), published on 23 August, is to rule out the jurisdiction of the Court of Justice of the European Union (CJEU) to determine the enforcement of rights and obligations by individuals and businesses derived under the Withdrawal Agreement (and any future relationship agreement) and disputes between the EU and the UK.  Since the Paper was published, the Prime Minister has again reiterated the Government’s position that “the UK will be able to make its own laws – Parliament will make our laws – it is British judges that will interpret those laws, and it will be the British Supreme Court that will be the ultimate arbiter of those laws.”

However, as discussed below, whilst perhaps consistent with the stage of negotiations, the Paper is drafted to leave considerable room for manoeuvre, and it leaves many questions unanswered regarding enforcement of rights and obligations under the Withdrawal Agreement and any future relationship agreements and dispute resolution between the UK and the EU after Brexit.

The Paper follows the publication on 22 August of the UK Government’s Future Partnership Paper on Providing a Cross-border Civil Judicial Cooperation Framework, considered in our blog post here, which presented the UK’s position on the extent to which current EU rules on choice of law, jurisdiction and enforcement of judgments should continue to apply as between the UK and the EU Member States post-Brexit. Continue reading

EU – Japan Economic Partnership Agreement announced

On 6 July 2017 the EU and Japan announced an agreement in principle on their Economic Partnership Agreement (“EPA“).  The scale of this agreement is eye-popping: once in effect the EPA will cover nearly 40 percent of all goods exports, 10 percent of the Earth’s population, and about 30 percent of global GDP.  The breadth of goods covered by the EPA will be similarly substantial and includes agricultural and food products, the forestry sector, industrial products, the automotive sector, electronics, and services.  While some tariffs, such as those on wine, will disappear from the moment the EPA enters into force, other tariffs – including those on imports of Japanese automobiles to Europe and imports of European chocolates to Japan – will disappear over a number of years.  The net effect will be to remove tariffs from 99 per cent of all goods traded between the EU and Japan with one study suggesting consequent increases in EU exports to Japan of 34% and Japanese exports to the EU of 29%. Continue reading

The European Court of Justice renders its opinion on the EU-Singapore free trade agreement: investment chapter is not within EU’s exclusive competence

On 16 May, 2017 the European Court of Justice (the Court) rendered its Opinion on the competence of the European Union to conclude the Free Trade Agreement (FTA) with Singapore. The Opinion recognises exclusive EU competence over most of the agreement and largely settles a long-standing dispute between the Commission and the Member States on the division of competences under the Lisbon Treaty.

Importantly, in the context of investor-state dispute resolution, the Court's Opinion is likely to render any agreement including protection for non-direct foreign investments or investor-state dispute settlement (ISDS) provisions a so-called "mixed agreement" which requires each of the Member States as well as the EU itself to become party, unless certain aspects commonly found in such agreements are removed or the Member States otherwise agree (discussed further below).  

The Opinion will have a major impact on the negotiation of future EU trade agreements, whether pending or anticipated (including the potential FTA between the UK and the EU following Brexit).

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CETA UPDATE: CETA is signed; Provisional application of CETA and Brexit; First government-to-government meeting to discuss establishing the multi-lateral investment court system

On 30 October 2016, the EU and Canada signed the Comprehensive Economic and Trade Agreement (the CETA).  As explained in our blog post here, the text of the CETA, which was originally agreed in 2014, was subjected to "legal scrubbing" in February 2016 which led to the inclusion, at the instigation of the EU, of an Investment Court System (an ICS) in place of the ad hoc investor-State arbitration provisions which had originally been included in CETA, and are included in roughly 3200 international investment agreements and other treaties. 

On 13 and 14 December 2016, the European Commission (the Commission) and the Canadian Government met in Geneva to engage in "exploratory discussions" with government representatives from around the world on the establishment of the multilateral ICS. It will have been the first meeting at government-to-government level on this initiative since the ICS was first proposed by the Commission in its Concept Paper of May 2015. For the multilateral ICS to succeed in the way envisioned by the Commission, broad global support will be required.

The CETA will be provisionally applied in advance of its ratification. However, as discussed below, provisional application will not extend to certain of the substantive investor protections, nor to the ICS. The exclusion of certain provisions from provisional application raises a number of questions as to how the agreement will operate in practice. 

Interestingly, whilst the UK has indicated that it intends to provisionally apply the CETA, the exclusion of the ICS from the provisional application has been described by the UK Government as its "main ask" of the EU in this context. The UK Government has also concluded that, even though CETA is being put forward as a "mixed agreement" and ratified by all the Member States, the UK will not automatically benefit from CETA's provisions after the UK leaves the EU.

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European Commission publishes draft investment chapter for the TTIP, including investment protection provisions and the establishment of an International Investment Court

On 16 September the European Commission published detailed draft proposals for the investment chapter in the proposed Transatlantic Trade and Investment Partnership treaty between the EU and the US (“TTIP”). The full text is available here. The chapter includes detailed investment protections and the establishment of an International Investment Court to resolve disputes under the TTIP. These proposals follow the Commission’s 5 May 2015 Concept Paper (discussed in our earlier blog here), which looked at reforming the ISDS system and proposed moving away from the current system of Investment Treaty arbitration.

The Commission has made it clear that this draft is for discussion and consideration within the EU before being put to the US as part of the TTIP text.

We explore and summarise below some of the key issues raised in the chapter.

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