Opinion procedure 2/15

Arguments

514.The Commission contends that the European Union has exclusive competence with regard to all the ISDS provisions in Section B of Chapter Nine. That competence follows necessarily from competence concerning substantive provisions of the agreement which are applied and interpreted when the dispute settlement mechanism is activated. That also means that, in principle, the European Union is solely responsible, as a matter of international law, for any breach of those provisions. The European Union may decide, as a matter of EU law, to apportion the financial responsibility linked to the ISDS mechanism between the European Union and the Member States and to empower the Member States to act as respondents (and thus possibly bear financial responsibility) where they are responsible for the contested treatment, unless that treatment is required by EU law. That is precisely the purpose of Regulation (EC) No912/2014,(401) which applies to all agreements to which the European Union is a party and that provide for an ISDS mechanism. The rules on apportionment contained in that regulation would apply when the European Union determines, in accordance with Article 9.15.2 of the EUSFTA, the respondent in an investor-to-State dispute.

515.The Commission has advanced no specific arguments in relation to Articles 13.16 (‘Government Consultations’) and 13.17 (‘Panel of Experts’) of the EUSFTA.

516.As regards Chapters Fifteen (‘Dispute Settlement’) and Sixteen (‘Mediation’), the Commission submits that those chapters are necessary to ensure the effective enforcement of rights and obligations under the EUSFTA and follow settled international practice. Because the European Union enjoys exclusive competence over the parts of the EUSFTA to which Chapters Fifteen and Sixteen apply, it also enjoys exclusive competence over those chapters.

517.The Parliament in essence shares the Commission’s position.

518.The Council argues that, since the European Union has no competence to legislate in relation to diplomatic protection (Article 9.28 of the EUSFTA), the European Union cannot in any event have exclusive competence to sign and conclude the EUSFTA. Notwithstanding Article 23(1) TFEU, the decision whether or not to give diplomatic protection in a particular case belongs to the Member States. In the alternative, the Council submits that the European Union’s competence as regards Article 9.28 of the EUSFTA is limited to disputes involving foreign direct investment.

519.The Council has made no specific arguments in relation to Chapters Fifteen and Sixteen.

520.Whilst most of the Member States having filed written observations have addressed Section B of Chapter Nine (extensively), their observations on Chapters Fifteen and Sixteen are much more limited. At the hearing, some Member States focused on the provisions of Article 9.28 of the EUSFTA, which concern diplomatic protection.

521.As regards Section B of Chapter Nine, they first argue that, since the European Union has no exclusive competence over types of investment other than foreign direct investment, it cannot enjoy exclusive competence as regards that section, which applies to both foreign direct investment and other types of investment. Furthermore, since the EUSFTA provides for a dispute settlement mechanism in which Member States may be designated as respondents, the constitutional laws of certain Member States may require them to participate in the conclusion of that agreement.

522.The Council and the Member States have made no specific arguments in relation to Articles 13.16 and 13.17 of the EUSFTA, other than to rely on Article 13.17 in support of their position on the European Union’s competence over the substantive provisions of Chapter Thirteen.

Analysis

523.In my view, the allocation of competences as regards mechanisms for resolving disputes concerning the interpretation and application of various provisions of the EUSFTA is accessory to the allocation of substantive competences. That is true both of Chapters Fifteen and Sixteen, which apply on a horizontal basis, and of other chapters which provide for specific forms of dispute settlement (such as Section B of Chapter Nine on investment and Chapter Thirteen on trade and sustainable development).

524.That allocation of competences between the European Union and the Member States is governed by the Treaties only. Internal rules of law, even of a constitutional nature, cannot alter that allocation.(402)

525.It follows from Opinions1/91, 1/09 and 2/13 that, where the European Union has competence as regards the substantive provisions of an international agreement, it also enjoys competence as regards the dispute settlement mechanisms, which aim to ensure that those provisions are effectively enforced. Such mechanisms merely help to achieve the primary objectives of the agreement and are thus accessory to the (substantive) rules to which they relate.(403)

526.That conclusion applies both to the horizontal dispute settlement mechanism in Chapter Fifteen and to the subject-specific mechanisms for resolving disputes laid down in Section B of Chapter Nine and in Chapter Thirteen.(404) Unlike some Member States, I consider that the fact that the ISDS mechanism gives an investor of one Party the right to initiate arbitration proceedings against the other Party has in itself no bearing on the allocation of competences between the European Union and the Member States. That feature reflects the fact that the Parties have chosen to opt for that type of dispute settlement as regards investment, instead of (or together with) inter-State dispute settlement. It therefore concerns the manner in which external competence is exercised rather than the existence and nature of that external competence.

527.The same reasoning applies to mediation mechanisms such as those laid down in Annex 9-E (specifically in relation to investor-State disputes) and in Chapter Sixteen. These also seek to ensure effective implementation of the provisions of the EUSFTA to which they apply.

528.My conclusion is not undermined by the argument (raised by one Member State) that, whilst Article 9.16 of the EUSFTA provides for an arbitration procedure under the auspices of the International Centre for Settlement of Investment Disputes (ICSID), the European Union cannot become a party to the Convention for the Settlement of Disputes concerning investments between States and nationals of other States, signed on 18 March 1965. It is true that only States can become parties to that convention.(405) However, the Court has already held that an obstacle under international law to the capacity of the European Union to enter into an international agreement does not concern the scope of the European Union’s external competence, which is to be judged solely by reference to EU law. Such an obstacle does not preclude the European Union from exercising its external competence through its Member States acting jointly in its interest.(406) In any event, ICSID arbitration is only one of the dispute settlement mechanisms mentioned in Article 9.16 of the EUSFTA.

529.Because dispute settlement and mediation mechanisms are ancillary in nature, the allocation of competences between the European Union and the Member States for such mechanisms is necessarily the same as for the substantive provisions to which they relate. In other words, those mechanisms are not in themselves capable of altering the allocation of competences between the European Union and its Member States.

530.I am therefore not convinced by the argument that, because the Member States may find that they are respondents in a dispute concerning investment and thus possibly bear the financial burdens resulting from a decision in such a dispute,(407) the European Union cannot have exclusive competence for agreeing to Section B of Chapter Nine of the EUSFTA.

531.Moreover, the rules on the apportionment of financial responsibility between the European Union and its Member States as set out in Regulation No912/2014 do not affect the allocation of competences under the Treaties. The introductory part of Article 1(1) of Regulation No912/2014 expressly states that that regulation is ‘without prejudice to the allocation of competences established by the TFEU’;(408) and that regulation itself must comply with the Treaty rules on competence.(409)

532.In any event, the Court has already held that it is of little importance, as regards the allocation of competences between the European Union and its Member States for concluding an international agreement, that the obligations and financial burdens inherent in the execution of the agreement are borne directly by the Member States.(410) Internal or external EU action within the sphere of the European Union’s competences does not necessarily involve a transfer to the EU institutions of the obligations and financial burdens which such action may involve; those rules are designed merely to substitute for the unilateral action of the Member States a common action based upon uniform principles on behalf of the whole European Union.(411)

533.As I see it, that reasoning applies a fortiori to financial burdens imposed on a Member State as a result of the adoption by an arbitral tribunal of a final award concluding that that Member State has applied measures incompatible with the rules of the EUSFTA on investment protection.

534.For the sake of completeness, I should add that, in Opinion1/78, the Court held in essence that, where an international agreement lays down a financing mechanism which constitutes ‘an essential feature’ of the agreement, that fact was in itself capable of justifying participation by the Member States in its conclusion, in so far as the ensuing financial burdens were directly charged to the budgets of the Member States.(412) I do not consider that that reasoning applies to the financial burdens that may result for the Member States from the ISDS mechanism under the EUSFTA. Such financial burdens, should they arise, would result from a Member State’s improper performance of obligations under the EUSFTA. They cannot therefore be compared to those examined by the Court in Opinion1/78.

535.I therefore conclude that the European Union has competence to agree to the dispute settlement and mediation mechanisms laid down in Chapter Nine, Section B, and Chapters Thirteen, Fifteen and Sixteen of the EUSFTA. As a result of the European Union’s shared competence over certain provisions of the EUSFTA to which those chapters apply, the European Union shares that competence with the Member States. In so far as the European Union enjoys exclusive competence as regards certain provisions of the EUSFTA, it alone can agree to Chapter Nine, Section B, Articles 13.16 and 13.17, and Chapters Fifteen and Sixteen of the EUSFTA.

536.I would emphasise that my conclusion concerns competence alone. I have not examined, and express no view on the material compatibility of Section B of Chapter Nine with the substantive rules of the Treaties. That issue falls outwith the scope of the Commission’s request for an Opinion.(413)

537.Finally, I am not convinced by the argument that the European Union cannot enjoy exclusive competence over Section B of Chapter Nine because of Article 9.28 of the EUSFTA. The main objection to that provision is that the European Union has no competence as regards diplomatic protection.

538.Since the point is of fundamental relevance only if the Court should hold that the European Union enjoys exclusive competence over all other parts of the EUSFTA, I shall assume, for the purpose of the discussion which follows, that to be the case.

539.Diplomatic protection concerns the processes through which the State of nationality of an injured person invokes the responsibility of another State for injury to one of its nationals caused by the latter’s wrongful action or omission so as to secure protection of that national and obtain reparation.(414) Or, as the Permanent Court of International Justice has put it, ‘by taking up the case of one of its subjects and by resorting to diplomatic action or international judicial proceedings on his behalf, a State is in reality asserting its own rights— its right to ensure, in the person of its subjects, respect for the rules of international law’.(415) It is a rule of customary international law that, before a State gives diplomatic protection to its injured nationals, those nationals must first have exhausted local remedies.(416)

540.Individuals have gradually obtained more individual rights under international law, including rights to invoke protection clauses against their own State and host States, and diplomatic protection therefore now co-exists with means that enable individuals to enforce their own rights directly (such as ISDS mechanisms).(417) According to the International Law Commission, ‘the dispute settlement procedures provided for ?by bilateral investment agreements? and ?the? ICSID offer greater advantages to the foreign investor than the customary international law system of diplomatic protection, as they give the investor direct access to international arbitration, avoid the political uncertainty inherent in the discretionary nature of diplomatic protection and dispense with the conditions for the exercise of diplomatic protection’.(418)

541.The Commission has confirmed that Article 9.28 of the EUSFTA is based on the ICSID Convention.(419)

542.As I see it, Article 9.28 of the EUSFTA concerns the relationship between, on the one hand, the jurisdiction of arbitral tribunals within the meaning of Section B of Chapter Nine (‘an EUSFTA Chapter Nine arbitral tribunal’) and, on the other hand, other (national or international) courts and tribunals and other processes for invoking the responsibility of another Party (Article 9.28.1) and arbitration panels within the meaning of Chapter Fifteen of the EUSFTA (‘an EUSFTA Chapter Fifteen arbitration panel’) (Article 9.28.2). Where a Party and an investor of another Party have consented to submit their dispute to arbitration under Section B of Chapter Nine, that dispute may (in principle) not be submitted to the jurisdiction of another court or tribunal through either diplomatic protection or an international claim. Two exceptions apply: first, where the Party has failed to abide by or comply with the award rendered by an EUSFTA Chapter Nine arbitral tribunal (Article 9.28.1) and, second, where an EUSFTA Chapter Fifteen arbitration panel has jurisdiction to hear a dispute with respect to a measure of general application (Article 9.28.2).

543.In my opinion, where mechanisms for resolving disputes relate to the interpretation and application of provisions of an international agreement falling within the European Union’s exclusive competence, the European Union may also decide on clauses that circumscribe the (exclusive) jurisdiction of those mechanisms.

544.Finally, pursuant to the first paragraph of Article 23 TFEU, diplomatic or consular authorities of a Member State may be required, in certain circumstances, to offer protection to nationals of another Member State as well as their own. Thus, EU law widens the category of persons that may benefit from diplomatic protection by a Member State. The Member States otherwise enjoy competence to decide on diplomatic protection. However, that competence is to be exercised in accordance with the competence which the Treaties confer on the European Union to accept the jurisdiction of mechanisms for resolving disputes relating to provisions of an international agreement that falls (on this hypothesis) within its exclusive competence.