Lavranos: Is an International Investor-to-State Arbitration System Under the Auspices of the ECJ Possible?

Nikos Lavranos (Ministry of Economic Affairs, The Netherlands) has posted Is an International Investor-to-State Arbitration System Under the Auspices of the ECJ Possible? Here's the abstract:

Almost two years into the Lisbon Treaty, it has by now become general knowledge that the EU has obtained explicit exclusive external competence in the area of Foreign Direct Investment (FDI) (Article 207 (1) TFEU). This transfer of competence from the Member States to the EU has created a host of major problems and raised many complex legal, institutional, economic and political questions, which will keep many of us busy for a long time.

Suffice to mention the still unresolved faith of existing extra-EU and intra-EU Bilateral Investment Treaties (BITs) of the Member States, the lack of definition of what FDI actually encompasses, and more generally, the lack of a clear delineation of the distribution of competences between the EU and its Member States with regard to FDI. More fundamentally, it remains to be seen how the European Parliament (EP) is going to use its new co-legislative powers concerning FDI in order to introduce non-trade concerns into this policy field. This list could of course be extended much further, but this contribution will leave these issues aside. Instead, I will merely try to answer the simple but very relevant question of whether, and if so, to what extent an international investor-to-state arbitration system under the auspices of the ECJ is at all possible.

Since the Treaties do not contain an outright – positive or negative – answer, one must turn to the jurisprudence of the ECJ. So far, the ECJ has not explicitly and directly addressed this question either. However, the ECJ has in the past issued several related Opinions and rendered many relevant judgments, which – taken together – should provide for a sufficient basis in order to answer the question to an extent that goes beyond mere speculation.

In the first place, the ECJ has made its views known as to the conditions and limitations of establishing and using international arbitration dispute settlement systems for resolving disputes between EU Member States.

In the second place, and most recently in Opinion 1/09 , the ECJ has quite clearly explained the limits for establishing an international court system for resolving disputes between private parties.

Thus, whereas the ECJ has not yet directly addressed the for our purposes relevant configuration of investor-to-(Member)state dispute settlement system within the European legal order, the approaches taken so far by the ECJ concerning Member State-to-Member State dispute resolution and dispute resolution between private parties, provide clear indications of how the ECJ would determine the question of allowing an investor-to-state arbitration dispute settlement system within the European legal order.

In other words, by using the detour of relying in analogy on the existing ECJ jurisprudence, an attempt is made to extrapolate the position the ECJ is likely to take for the configuration of investor-to-state arbitration.

The starting point of the subsequent analysis will thus be Opinion 1/09, enriched by other relevant Opinions and judgments such as Opinion 1/91 and MOX plant . The working hypothesis for this contribution is that the EU is competent to conclude - together with the Member States - comprehensive FTAs that include investment chapters as well as stand-alone EU BITs as mixed agreements.

Furthermore, it is assumed that such FTAs and EU BITs will contain full-fledged international investor-to-state arbitration rules or systems that are comparable to what is currently the best practice of the Member States’ BITs.

The analysis will proceed by first shortly recalling the main reasons for including investor-to-state arbitration systems in practically all BITs. After having thus established the rationale and functioning of such systems in international (investment) law, the analysis will turn towards the situation within the EU, in particular as determined by the jurisprudence of the ECJ. Finally, some concluding remarks will wrap up this contribution.