Winter 2017

CETA Investment Court System compatibility with European Union Law: Belgium’s referral to the Court of Justice of the European Union

On 1 September 2017, in the context of its ratification of the Comprehensive Economic and Trade Agreement between the European Union (“EU”) and Canada (“CETA”), Belgium requested an opinion from the Court of Justice of the European Union (“CJEU”).  Specifically, Belgium inquired about “the compatibility of Chapter 8 (‘Investments’), Section F (‘Resolution of investment disputes between investors and states’) with the Treaty on EU and the Treaty on the Functioning of the EU (the “European Treaties”), including basic rights”.  [See Belgian Request for an Opinion from the European Court of Justice]  The referral concerned the reformed system of investor-State dispute settlement contained in CETA, the so-called Investment Court System (“ICS”), which will be made up of a Tribunal and an Appeals Body.

Background

CETA was signed on 30 October 2016 and became provisionally applicable on 21 September 2017.  Given its status as a mixed-competence agreement, it is subject to ratification by the Member States of the EU.  Moreover, due to its disputed compatibility with EU law, the investment chapter (which includes the ICS) was exempted from the provisional application of the treaty.  In this context, and following pressure from the regional parliament of Wallonia, the Belgian government decided to request the opinion of the CJEU on the compatibility of the ICS with EU law.

Belgium’s Questions to the CJEU

Belgium put four questions to the CJEU.  The CJEU will have to determine whether the ICS is compatible with EU law and, in particular, with the:

  1. Competence of the CJEU to provide the definitive interpretation of EU law;
  2. General principle of equality and the “practical effect” requirement of EU law;
  3. Right of access to the courts; and
  4. Right to an independent and impartial judiciary.

The first question presumptively relates to the concern that the ICS would endanger the exclusive competence of the CJEU to provide binding interpretations of EU law and to ensure uniformity and autonomy of EU law across the Member States.

The second and third questions allude to the alleged preferential treatment that foreign investors would receive on account of their nationality, in circumvention of the principle of equality in EU law.  At the same time, they refer to the fact that arbitration is not among the dispute settlement mechanisms named in the European Treaties.

As for the fourth question, it pertains to the operational guarantees of the ICS as an objective and independent system for the settlement of investment disputes.  Belgium has clarified further that it seeks to know how the members of the ICS will be remunerated, appointed and discharged and the regime for their ethical standards, their code of conduct and their permitted external professional activities.

The Future?

The significance of a negative answer to Belgium’s questions (concerning the compatibility of the ICS with EU law) is twofold.  First, it could put an end to the ICS proposal as a dispute settlement mechanism for investment disputes.  In that scenario, the Commission would have to discontinue its support.  Second, should Wallonia not cooperate, the future of CETA itself, or at least of its investment chapter, would be uncertain.

In the past, the CJEU has declined to entrust the interpretation of EU law to other international adjudicatory bodies.  All of that being said, CETA contains what may be seen as a “safeguard” provision.  According to CETA Article 8.31, a tribunal may consider domestic law (including EU law) as a matter of fact and follow the prevailing interpretation given by national courts.  This provision might be sufficient to satisfy the CJEU that its interpretative primacy is secure.

Also of note in this context, parallel to Belgium’s referral, and with a view to replacing CETA’s ICS, the European Commission is pursuing its general policy to reform investor-State dispute settlement through its proposal for the establishment of a multilateral court for the settlement of investment disputes (“MIC”).  In September 2017, the Commission sought permission from the Council of the EU to begin negotiations on the MIC.  In March 2018, the Council of the EU adopted the “Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes”.  And, in the coming months, on the basis of the Council’s mandate, the Commission will start negotiations with its trading and investment partners in the framework of the United Nations Commission on International Trade Law (UNCITRAL).