Client Earth | 19 May 2016
Member states’ proposal for more investor protection legally flawed
A leaked proposal by Austria, Finland, France, Germany and the Netherlands seeks to establish more investor protection through a multilateral investment treaty among all EU countries, which would include investor-state dispute settlement (ISDS). It would replace the bilateral investment treaties (BITs) concluded by some of the old member states with member states in Central and Eastern Europe before they joined the EU.
The proposal would not only significantly expand the investment regime in Europe, it would also fundamentally undermine the EU’s internal market provisions and the role of the courts of the Member States and the European Court of Justice in safeguarding their operation. The EU internal market’s Four Freedoms guarantee the right of establishment and the free movement of capital. These rights can be relied upon directly in EU courts which guarantee that the right balance is struck between these economic rights and the protection of public interests such as environmental protection, social protection, and consumer protection.
Proposed investor protection would create alternative legal system
The proposed system would, however, create an alternative judicial remedy to the EU’s internal market system. It would enable arbitrators to strike a different balance between public interests and these rights, effectively introducing judicial competition between the EU’s public courts and these private arbitrators, undermining the proper functioning of the EU internal market. The proposal does not unambiguously envisage a role for the ECJ in interpreting the provisions of this new multilateral investment treaty.
Moreover, whether the Permanent Court of Arbitration (PCA) can properly involve the ECJ for questions of EU law and whether the ECJ can actually interpret this multilateral investment treaty concluded entirely outside the EU’s legal framework is doubtful. The PCA is not a court of a member state and it is highly questionable whether awards arising out of these disputes can be placed at the same level of commercial arbitral awards.
There are therefore significant legal doubts whether such a system is compatible with the Treaties. We call upon the member states involved to drop this proposal. Investment protection is already sufficiently guaranteed in the EU. There is therefore no need to put the EU’s judicial system at risk with this proposal.
