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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Brexit—the future of state-to-state, investor-state and domestic dispute resolution

The Brexit White Paper

The much-anticipated Brexit White Paper, ‘The United Kingdom’s exit from and new partnership with the European Union’, was published on 2 February 2017. This post focuses on a subject that has to date received relatively little attention—what it has to say about the future of dispute resolution. In its Chapter 2 (‘Taking control of our own laws’), and Annex A, the White Paper contains perhaps a surprising amount on dispute resolution, in comparison to the text devoted to the other eleven of the UK government’s 12 stated principles.

In this blog post we review the White Paper with the aim of discerning so far as possible the potential future of dispute resolution for the UK. In particular, we consider how the UK government envisages, at this relatively early stage, that disputes will be resolved under new post-Brexit UK-EU agreements, and if and how UK businesses will be able to enforce their provisions. We also consider certain implications of the end to the Court of Justice of the European Union (CJEU)’s jurisdiction in the UK and the adoption of the acquis under the Great Repeal Bill.

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A step towards finalising the Trans-Pacific Partnership Agreement: what does this mean for businesses?

As discussed in our blog post here, the TPP is a major free trade agreement between twelve countries in the Asia Pacific and the Americas that has been under negotiation for over four years. These twelve countries are the USA; Canada; Japan; Australia; New Zealand; Singapore; Vietnam; Malaysia; Chile; Peru; Mexico; and Brunei.

On 24 June (Washington DC time), the US Congress voted to give President Obama “Trade Promotion Authority”. Trade Promotion Authority authorises the President to enter into trade deals and eases the TPP’s passage to ratification by disallowing any Congressional amendments. Although the authority is not the signing of the TPP itself, it is a significant signal that the TPP is to be signed imminently.

As negotiations enter the final stages, it is clear that the TPP will bring about broad-reaching changes to the way organisations across the world do business. We have created the Trans-Pacific Partnership Hub to keep you up to date with the latest developments. We will continue to update the Hub as the implications for specific sectors and businesses are delivered.
For further information, please contact one of the TPP Expert Team listed below, or your usual Herbert Smith Freehills contact.

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Forthcoming Chatham House and Herbert Smith Freehills Symposium: “TTIP: shaping the future for investor-state dispute settlement” – 4 March 2015

The proposed Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US, two of the world’s largest economies, is intended to remove trade barriers, create wealth and promote investment.  On 13 January, the European Commission published the results of its public consultation on investment protection and investor-state dispute settlement (ISDS) in  TTIP.  Of the 150,000 responses, 97 per cent were negative.  Critics have stated that the ISDS proposals would allow corporates to undermine regulation by governments in fields such as environmental protection.  A further consultation is promised.

But why has ISDS in TTIP aroused such opposition?  Can it be improved to strike a balance between investment protection and the right of governments to regulate?  And, if TTIP is a blueprint for future free trade agreements (FTAs), what lies in store for this form of dispute resolution?

Chatham House in partnership with Herbert Smith Freehills are holding a symposium to bring together voices from across a broad range of stakeholders.

Participants:

Sapfo Constantatos, Senior Group Legal Counsel, Dispute Resolution in the General Counsel’s Office, Standard Chartered Bank
Andrew Coop, Senior Legal Adviser, EU and International Trade, Department for Business, Innovation and Skills
Lorenzo Cotula, Principal Researcher, Law and Sustainable Development, International Institute for Environment and Development
Andrea Shemberg, Lead, Investment and Human Rights Project, London School of Economics; Legal Adviser to UN Secretary-General’s Special Representative for Business and Human Rights (2007-11)
Christian Leathley, Partner, International Arbitration and Public International Law, Herbert Smith Freehills LLP, London

Chair:
Andrew Cannon, Partner, International Arbitration and Public International Law, Herbert Smith Freehills LLP, London

For further information, please click here.

Christian Leathley
Christian Leathley
Partner
+44 20 7466 2532
Andrew Cannon
Andrew Cannon
Partner
+33 1 53 57 65 52

Investment protection and ISDS in the TTIP: the discussion continues with more consultation around the corner

Yesterday afternoon, the EU Commission issued its Report on the outcome of the public consultation on the inclusion of investment protection and investor-state-dispute-settlement (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP) being negotiated between the EU and the US. As discussed in our blog post here, the public consultation was launched against the backdrop of vociferous debate about the nature of ISDS and investment protection more generally and in relation to the TTIP. The controversy surrounding investment protection and ISDS in connection with the TTIP is described in our recent podcast.

It is no surprise that the Report reveals strong opposition to, and concerns about, ISDS in the TTIP. It is also no surprise that the discussion as to both the content of the investment protections (including any “right to regulate”, as it is known), and the nature of the mechanism by which these can be enforced, will continue. In its Report, in response to the criticisms of inclusion of ISDS in the TTIP, the Commission refers back to the fact that the consultation takes place in specific circumstances in which the Council (and therefore, to all intents and purposes, each Member State) has unanimously entrusted the Commission to negotiate high standards of investment protection and ISDS within the TTIP, providing the final outcome corresponds to EU interests.   Further, whilst the negotiating directives include an element of conditionality and make clear that a decision on whether or not to include ISDS is to be taken during the final phase of negotiations, it cannot be ignored that the US position is also that investment protection and ISDS should feature in the TTIP.

Whilst the consultation received an extremely high proportion of pre-populated responses organised by NGOs (which generally opposed the inclusion of ISDS), it also solicited responses from a broad cross-section of stakeholders which has allowed the Commission to identify a number of key points areas (or “core issues”) to develop. These are:

  • The protection of the right to regulate
  • The supervision and functioning of arbitral tribunals
  • The relationship between ISDS arbitration and domestic remedies
  • Review of ISDS decisions for legal correctness through an appellate mechanism

The Commission has committed to further consultation with EU stakeholders in the first quarter of 2015.  However, at this stage it is not clear how further consultation on these “core issues” will put the Commission in a better position to develop the investment chapter. For example, the “right to regulate” is the flip-side of the guarantee to an investor of fair and equitable treatment. Any re-consideration of the right to regulate will be deficient if it does not take into account the positive rights of investors which impact on the state’s right, as well as the sectors in which such right should exist without limitation. Again, the relationship between ISDS arbitration and domestic remedies depends on the balance struck between investment protections and the rights of states.  A holistic approach is needed.

The Commission’s Report on the responses to the Consultation is found here, and the accompanying Commission Memo is found here. Aspects of the Report are considered in further detail below. You may also wish to hear Herbert Smith Freehills public international law partner Matthew Weiniger QC discussing these issues on the Today programme on Radio 4 on 14 January 2014 (at 18.55 mins into the broadcast).

For further information, please contact Matthew Weiniger QC, partner, Christian Leathley, partner, or Andrew Cannon, partner, or your usual Herbert Smith Freehills contact.

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European Commission requests European Court of Justice Opinion on competence to enter into EU-Singapore FTA

On 30 October the European Commission issued a press release announcing its intention to seek an opinion from the European Court of Justice as to the interpretation of the Lisbon Treaty in the context of the EU-Singapore Free Trade Agreement.

There has been a great deal of furore surrounding the negotiation of the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the United States of America and the agreement in principle of the text of the Comprehensive Economic Trade Agreement (CETA) between the EU and Canada, largely focused on the need for investment protection and the use of Investor State Dispute Settlement (ISDS). As a result, the conclusion of the Free Trade Agreement talks between the European Union and Singapore on 17 October 2014 has been overlooked by many. However, the conclusion of these talks has brought one of the many unresolved issues in this area to a head.

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Christian Leathley speaks at BritishAmerican Business event with keynote speech by EU Trade Commissioner Karel de Gucht: “TTIP and the Investment Dimension: What is the State of Play?”

International arbitration partner Christian Leathley spoke on a panel at an event organized by transatlantic business organization BritishAmerican Business yesterday discussing how important investor-state dispute settlement is to the success of the TTIP and whether it is feasible or desirable for the TTIP to be concluded in the absence of ISDS provisions. The TTIP is discussed in our blog post here. The keynote speech at the event was delivered by European Commissioner for Trade Karel de Gucht, who is negotiating the TTIP on behalf of the EU.

Mr de Gucht described the need for the EU Commission to get the right balance between protecting the rights of investors and preserving the right of states to regulate in the public interest. He also explained how the investment protection provisions in the TTIP were of fundamental importance in setting the standards which would be relevant in the negotiation of future investment agreements and FTAs between the EU and other states. Other speakers also referred to the global signal which would be sent by the inclusion of ISDS and the content of the substantive protections in the TTIP.

Christian noted that there was a need to identify what was the fundamental problem with ISDS; namely, that it was not the arbitral institutions (in particular ICSID) which were the issue and, whilst access to arbitration is fundamentally important, the core of the criticism of ISDS addressed the substantive rights granted to investors. He commended the EU Commission for launching the public consultation on the investment protection provisions in the TTIP as an attempt to bring together the perspectives of states and investors on substantive protection in a meaningful way. In terms of the EU Commission’s approach to the negotiation of the investment protection chapter with the US, Christian highlighted some points for further consideration, including: (i) questioning the need to amend or add to the UNCITRAL Transparency Rules, which themselves were the product of very detailed consideration; (ii) noting that the “closed list” of grounds for breach of the Fair and Equitable Treatment Standard was in places inconsistent and incomplete, particularly with regard to the treatment of an investor’s legitimate expectations; and (iii) criticising an approach which was premised on an assumption that use of shell companies was per se abusive.

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The Trans-Pacific Partnership: a New Year’s resolution of special significance

Following a further round of negotiations for the Trans-Pacific Partnership Agreement (the TPP) held in Singapore at the start of December 2013, it is expected that the agreement will be signed in early 2014 after more than three years of highly secretive negotiations. The TPP is a regional free trade agreement which, if the negotiations are successfully concluded, could create a trade bloc second only to the European Union in the size of its total trade value. The conclusion of this agreement is expected to have enormous significance for the dynamics of global trade and the outcome is keenly anticipated.

Although the negotiations have taken place behind closed doors, which is itself a source of great concern for many observers, speculation has centred on the public commentary by the participating states around issues central to the agreement. This has been augmented by the leak of several draft chapters of the agreement over the past three years. While the negotiations are likely to have moved on significantly since they were disclosed, the leaked chapters continue to shape the discussion around the content of the TPP and its highly contentious provisions.

With the twelve state parties – including the United States, Canada, Japan, Australia and Singapore – having set the ambitious goal of reaching agreement by the end of last year, this twenty-first round of negotiations was anticipated as the potential turning point for issues believed to be the source of significant rifts in the partnership. However, reports indicate that while a resolution has not yet been reached, the agreement is likely to be concluded early in 2014.

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Australia-Korea FTA concluded: investor-state dispute resolution mechanism included

On 5 December 2013, Australia and South Korea concluded negotiations for a Free Trade Agreement (FTA).

Trade with South Korea was valued at AU$31.9 billion in 2012, making Korea Australia’s fourth biggest two-way trading partner (following China, Japan and the United States) and third largest export market.

As a result of the FTA, tariffs will be eliminated on key Australian exports to Korea such as beef, wheat, dairy, wine, horticulture and seafood, resources, energy and manufactured goods. The FTA will also provide new market opportunities in other  industries such as education, telecommunications and financial, accounting and legal services.

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