by Horia Ciurtin LL.M., Managing Editor of the EFILA Blog*
The Geo-Economic ‘Great Game’ and Its Symbolic Requirements
The Commission’s endless troubles with intra-EU investment treaties appears as a benchmark for its ability to develop a coherent trade and investment policy. Every single state and non-state stakeholder across the globalized agora is closely watching the manner in which the EU power is shifting from its soft forms to more ‘classical’ forms of constructing internal and external authority. In this sense, the handling of its own member states and their BITs is perceived as a litmus test for the Commission’s capacity to order itself internally and, thus, its future ability to project a coherent stance outward.
Therefore, reaching – or imposing – an internal consensus on the intra-EU BITs is a pre-condition for the EU becoming a truly relevant international player, detaching its future FTAs from those concluded before by member states. In this sense, the Commission is itself constrained to break loose from the MFN network laid down in prior bilateral treaties and to cut off national cabinets from their international capacity in investment law. Autonomy of the EU in foreign (economic) affairs is the keyword for Brussels. Autonomy from its members, autonomy from its often turbulent civil society and autonomy from other international organizations.
In this sense, as the Commission’s goal is to prevent ‘dangerous’ overlaps of projected (and symbolic) authority inside and outside the Union, it feels that the internal network of BITs must be first dismantled. And the extra-EU BITs are next on the list. More precisely, EU law cannot appear to be overrun by other norms within the realm subjected to the control of the Commission. Allowing such a phenomenon would immediately be perceived as a weak spot in the EU’s impenetrable normative armour by all the other actors from the global arena.
In such a geo-economic ‘great game’, no player can be perceived as lacking the force – or determination – to present a unitary and coherent stance. Everything is about leverage in negotiations. And no hesitating actors are allowed at the table.
Act I, A Euro-Tragedy Commencing: Carrying a Big (Legal) Stick
Somehow strangely for its previous benign image, the Commission appears to have lately got fond to Roosevelt’s principle of “speaking softly and carrying a big stick”. The infringement stick carried around and shown vigorously to (some) member states is a symbolic move to show that it really means to end the BIT regime.
After speaking softly – in the parlance of EU law supremacy and unitary treatment for European economic actors – the Commission decided to commence proceedings against those five member states who have been involved in finalized investment arbitrations (either on the claimant side or as respondents): Austria, the Netherlands, Romania, Slovakia and Sweden.
Not immediately compliant with the EU’s newly-discovered policy of terminating such BITs, these five member states found themselves at the whim of the Commission which not only argued for a coherent and non-discriminatory regime for all European investors, but also demanded that they dismantle the investment regime in a manner that might be at odds with good practices in international law.
More precisely, the request to strip away the effects of the so-called ‘sunset clauses’ is largely seen by many specialists in the field as a dishonest artifice on behalf of the signatory sovereigns (or those who push states to such a conduct. In addition, a paradox of the Commission’s stance is to ask investors from one state or another to entirely exclude (independent) arbitration as a justice mechanism and rather imbue this task upon national courts which the Commission itself criticizes on numerous occasions. While international arbitrators are relieved of this function, regular courts (sometimes under MCV scrutiny) from member states – often partisan with their national authorities – are considered as the only ones to properly protect investors’ rights.
When analyzing the distribution of states which have been subjected to this first wave of infringement proceedings, it can be seen that – with the relative exception of the Netherlands – none of them is a traditional or big EU player. For instance, despite the settlement in the Vattenfall v. Germany I case, Germany was not part of this lot. The other EU actors (such as the Franco-German entente or the British outlier) were just ‘warned’ and shown indirectly – but with deference – what could happen in case of non-compliance.
These initial five states rather represented the symbolic sacrifice, meant to give an example (a bad one) to the whole Union, in contrast with the two ‘good’ states (Italy and Ireland) that renounced the ‘treacherous ways’ of intra-EU BITs. Commissioner Jonathan Hill expressly made this point when arguing that “Intra-EU bilateral investment treaties are outdated and as Italy and Ireland have shown by already terminating their intra-EU BITs, no longer necessary in a single market of 28 Member States”.
And thus, the scene was set for the evolution of an unplanned dramatic dynamics.
Act II, A Euro-Comedy Unfolding: Impossible Solutions to Unknown Dilemmas
While it would have been predictable for the five infringing states to take either take a common position against the Commission or to tacitly comply, nobody foresaw that only two of them (Austria and the Netherlands) would attract other non-infringing states (France, Germany and Finland) and together make a counter-offer to the European executive. Their peculiar ‘Non-Paper’ was submitted to the Council – and not directly to the Commission – in a move that emphasizes a more profound power-game within the Union. Concentrating five states from the more prosperous and stable core of the EU (including the Franco-German bloc), with more leverage in negotiations and with a potential to coagulate a larger participation from the remaining member states, this Non-Paper essentially polarized the discussion on a different path, i.e. what comes after the termination of BITs.
While in principle agreeing to the immediate phasing out of investment treaties (obliterating the ‘sunset clauses’ and their effects), the Non-Paper establishes one single condition: general, coordinated and multilateral termination. This might prove feasible on the short term. However, it seems rather strange – given the history of the EU and its numerous normative impasses – to request a similar step in re-building investor protection.
In other words, the Non-Paper does not wish for a multilateral reform of the system – in conformity with EU law desiderates – but rather its total obliteration and then constructing it again from scratch. Although, not very differently. From a substantial perspective, the drafters of the Non-Paper advocate – more or less – the same standards used in classical BIT, but ‘codified’ for all member states and in a EU framework presenting an undisputable degree of deference to European law.
In addition, three procedural options are presented: one momentarily impossible, one politically improbable and one virtually unchanged. Either using the European Court of Justice as an ISDS (or, rather, ICS) EU-inspired proxy, or creating an autonomous body for exactly this type of disputes, or using the PCA under a limited and custom-made procedural framework. Apparently, this last alternative is the preferred one on the short-term, allowing a truly arbitral institution (one of the most prestigious, indeed) to administrate the future investment cases.
Therefore, all changes but everything stays the same.
Awaiting for the Grand Finale: Switching Centers, Merging Peripheries
In reality, this latest Non-Paper (rather a ‘Non’ than a ‘Paper’) might be reasonably perceived as a smoke and mirrors maneuver to coagulate a different type of EU-wide policy. Both the Commission, the ultra-compliant member states and the recalcitrant ones risk to be left on the margins, as a new ‘core’ tends to form. The stake of this strategic gamble is to determine who shall be the ‘center’ and who shall lie on the ‘periphery’.
For a coherent investment regime to emerge inside and outside the Union, perhaps, a less radical stance is needed from all sides involved. The internal power struggles of the EU might uncontrollably spill over its borders and affect its negotiations with other global players, if a majoritarian consensus is not soon reached. The Commission’s push on member states to dismantle the present BIT network might have worked with Italy or Ireland (and seems to be going well with Denmark and the Czech Republic), but it has attracted none of the big power brokers.
On the contrary, the Commission’s attitude managed to bring together the Franco-German entente with the Dutch key player, allowing for a nascent alternative consensus to be formed outside its reach. In parallel, the ground is also fertile for a grouping of dissenting states, including the UK (if it decides to remain in the EU) and Sweden (whose investors are involved in consistent ISDS proceedings) which might form another ‘center’, opposing the Commission’s mission to dismantle the BIT regime.
In such conditions, the global ‘great game’ and the EU’s future as a major international player might well be undermined by its internal divisions. As all enduring troubles, the EU’s start at home. Trying to exert too much force on a very limited – and largely marginal – issue tends to spiral into opposition. Preventing such dissensus to turn to outright defiance entirely rests with the Commission. The velvet gloves must come back on …
* Horia Ciurtin, Managing Editor, EFILA Blog; Expert, New Strategy Center; Legal Adviser – International Arbitration, Scandic Distilleries S.A; [see SSRN author page].