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Table of contents :
Acknowledgments......Page 6
Contents......Page 9
1.1 A Short Summary of the Findings......Page 13
1.2 The Research Question......Page 14
1.3 The Structure and the Methods......Page 16
References......Page 20
Part I: The Legal Equipment: Competence, Constraints and Objectives......Page 21
Chapter 2: EU Human Rights as a Framework for Foreign Policies......Page 22
2.1 Human Rights as a General Objective and Principle......Page 23
2.2 Applicable Human Rights Norms and Their Relation to the Human Rights Objective......Page 26
2.2.1.1 International Law as a General Objective and Principle......Page 28
2.2.1.2 International Human Rights Treaties as EU Law......Page 29
2.2.1.3 European Convention on Human Rights (ECHR)......Page 32
2.2.1.4 Relevance of International Human Rights for International Investment Policy Making......Page 33
2.2.2 The EU Charter of Fundamental Rights: Responsibility Beyond the Territorial Paradigm......Page 40
2.2.2.1 Scope of Article 51(1) of the EU Charter......Page 41
2.2.2.2 Case Law on Extraterritorial Application of the EU Charter......Page 45
2.2.3 Conclusion......Page 49
2.3.1 Specific Objective of Investment Liberalization......Page 50
2.3.2 Principle of Coherence......Page 56
2.3.3 Other External Objectives and Principles......Page 58
2.3.4 Other Constitutional Principles......Page 60
2.3.5 General Horizontal Clauses......Page 61
2.3.6 Conclusion......Page 62
2.4.1 Competence: The ‘Can’......Page 63
2.4.1.1 The Situation Pre-Lisbon: Human Rights Policy Fettered by Fragmentation......Page 64
2.4.1.2 What Does the Human Rights Objective Change?......Page 70
2.4.1.3 Conclusion......Page 77
2.4.2 Obligations and Constraints: The ‘Must’......Page 78
2.4.2.1 Obligation to Respect: Continuous Assessment and Adjustment of Policies......Page 80
2.4.2.2 Obligation to Promote: No Regression, Coherence and Contribution to Human Rights Realization......Page 82
2.5 Judicial Implications......Page 86
2.5.1 Expansion of the Legal Protection of Individuals Outside the EU?......Page 88
2.5.2 New Benchmarks for Material Legality?......Page 91
2.5.3 Conclusion......Page 95
2.6 Conclusion......Page 96
References......Page 97
Chapter 3: The International Investment Competence of the EU......Page 103
3.1 Introduction......Page 104
3.2 The Traditional Scope of International Investment Regulation......Page 106
3.3 The Common Commercial Policy: Exclusive Competence......Page 107
3.3.1 Foreign Direct Investment, Portfolio and Other Forms of Investment......Page 108
3.3.2 Market Access and Post Admission Protection......Page 111
3.3.3 Limitation on Grounds of Art. 345 TFEU......Page 115
3.4.1 Free Movement of Capital and Payments......Page 117
3.4.2 Implied Exclusive Powers......Page 119
3.4.3 Implied Shared Powers......Page 122
3.5 Derogations......Page 123
3.6 Investor-State-Dispute Settlement......Page 124
3.7 Termination of Member States’ BITs......Page 128
3.8 Summing Up: Mapping the Competences and Discussing the Options......Page 129
3.9 The Remaining Role for Member States......Page 131
3.10 Conclusion......Page 134
References......Page 135
Part II: The Context: Entering an Unjust Regime?......Page 138
Chapter 4: Tensions Between the International Investment Regime and Human Rights: A Regulatory Tilt?......Page 140
4.2 Overview of the Emergence of International Investment Law......Page 141
4.3 Substantive International Investment Law: The Investor Privileges......Page 151
4.3.1 Scope of Protection......Page 152
4.3.1.1 Tensions with Human Rights......Page 153
4.3.1.2 Counter Movements......Page 157
4.3.2 Protection Against Direct and Indirect Expropriation......Page 161
4.3.2.1 Tensions with Human Rights......Page 163
4.3.2.2 Counter Movements......Page 166
4.3.3 Fair and Equitable Treatment......Page 170
4.3.3.1 Legitimate Expectations......Page 173
4.3.3.2 Tensions with Human Rights......Page 174
4.3.3.3 Counter Movements......Page 178
4.3.4 Full Protection and Security......Page 182
4.3.5 National Treatment......Page 184
4.3.6 Umbrella Clause and the Stabilization Clause......Page 185
4.3.6.1 Human Rights Tensions......Page 188
4.3.6.2 Counter-Movements......Page 189
4.3.6.3 Conclusion......Page 190
4.4.1 Introduction......Page 191
4.4.2 Procedural Exclusion of Third Parties......Page 192
4.4.3 The Set-Up and Composition of ISDS Tribunals: Bias in the System......Page 196
4.4.3.1 Dependencies, Conflict of Interests and Revolving Doors......Page 197
4.4.3.3 Lack of Transparency and Public Access to Information......Page 199
4.4.3.5 No Exhaustion of Local Remedy......Page 200
4.5 Conclusion......Page 201
References......Page 202
5.1 Introduction......Page 208
5.2.1 Definition of Investor, Investment and Jurisdiction......Page 209
5.2.2 Protection Against Expropriation......Page 214
5.2.3 Fair and Equitable Treatment......Page 217
5.2.4 Full Protection and Security......Page 222
5.2.6 The Umbrella Clause......Page 223
5.2.7 Non-Derogation and Non-Lowering of Standards......Page 225
5.2.8 Most-Favoured-Nation Standard......Page 227
5.2.10 Including an Expressed Right to Regulate......Page 228
5.2.11 Interpretative Declarations......Page 231
5.2.12 Exclusion of Direct Effect......Page 232
5.2.13 The Trade and Sustainable Development Chapter......Page 233
5.2.14 In Sum: The Place for Human Rights......Page 235
5.3 Reforms of the Arbitration System......Page 236
5.3.1 Third Party Participation......Page 237
5.3.2 The Reformed ISDS or the Investment Court System......Page 238
5.3.2.1 Secured Tenure, Random Appointment and Code of Ethics......Page 239
5.3.2.3 Transparency as Default......Page 241
5.3.2.5 No Exhaustion of Local Remedy......Page 242
5.4 Conclusion......Page 243
References......Page 245
Part III: Resolving the Failures, Utilizing the Possibilities: Two Proposals......Page 246
6.1 Introduction......Page 250
6.2.1 The International Human Rights Approach to HRIA......Page 252
6.2.2.1 Legislative or Administrative Principles?......Page 256
6.2.2.2 The Duty of Care......Page 257
6.2.2.3 The Duty of Diligent Fact Finding......Page 260
6.2.2.4 The Duty to Consult......Page 262
6.2.2.5 The Duty to State Reasons......Page 265
6.2.2.6 Proportionality......Page 266
6.2.2.7 Transparency......Page 267
6.2.2.8 Linking Principles of Process to the Outcome: Acting Accordingly?......Page 269
6.2.3 Summarizing the Legal Framework for HRIA......Page 270
6.3 The EU Rules on Human Rights Impact Assessments......Page 271
6.3.1 The Design According to EU Soft Law......Page 272
6.3.2 Procedures......Page 277
6.3.3 Legal Consequences: Linking the Results to the Final Decision......Page 281
6.3.4 Conclusion on the Implementing Rules......Page 283
6.4 The Practice: Examples of Shortcomings and Potential......Page 285
6.4.1 Substantive Scope......Page 286
6.4.2 Inclusive Participation and Balanced Representation......Page 287
6.4.3 Transparency and Independence......Page 289
6.4.4 Conceptual Limitations as to the Legal Consequences, the Possibility to Influence and the Substantive Scope......Page 290
6.5 Conclusion......Page 294
References......Page 295
7.1 Introduction......Page 297
7.2.1.1 Continuous Duty: Follow Up and Substantiation of the SIA......Page 299
7.2.1.2 Duties of Continuous Consultation During Implementation......Page 301
7.2.1.3 Comprehensive Assessment: Inclusive Consultation and Combatting Domestic Exclusion......Page 302
Definition in Human Rights Law......Page 306
Definition According to the SD Discourse......Page 307
Threats for Empowerment......Page 308
7.2.2.2 Specific Rights to Participate......Page 310
7.2.3 Conclusion on the Parameters......Page 314
7.3 Potential and Shortcomings of the Current Concept, Set Up and Practice......Page 315
7.3.1 The Institutional Design......Page 316
7.3.2 The Practice......Page 319
7.4.1 Conceptual Limitations and Substantive Scope......Page 324
7.4.3 Guaranteeing Inclusiveness......Page 326
7.4.5 Real Influence and the Lack of Any Institutionalized Response Mechanisms......Page 327
7.5 Conclusion......Page 328
References......Page 329
Chapter 8: Concluding Remarks on the EU Obligation to Empower Neglected Interests and on Ways Forward to More Inclusive Global Economic Regulation......Page 331
References......Page 337

Citation preview

Interdisciplinary Studies in Human Rights 4

Vivian Kube

EU Human Rights, International Investment Law and Participation Operationalizing the EU Foreign Policy Objective to Global Human Rights Protection

Interdisciplinary Studies in Human Rights Volume 4 Editor-in-chief Markus Krajewski Faculty of Law, Friedrich-Alexander-University Erlangen-Nürnberg, Erlangen, Germany Series editors Petra Bendel Center for Area Studies, Friedrich-Alexander-University Erlangen-Nürnberg, Erlangen, Germany Heiner Bielefeldt Institute of Political Science, Friedrich-Alexander-University Erlangen-Nürnberg, Erlangen, Germany Andreas Frewer Institute for History and Ethics of Medicine, Friedrich-Alexander-University Erlangen-Nürnberg, Erlangen, Germany Manfred L. Pirner Religious Education, Friedrich-Alexander-University Erlangen-Nürnberg, Nürnberg, Germany

Human rights are one of the normative cornerstones of contemporary international law and global governance. Due to the complexities of actual or potential violations of human rights and in light of current crises, new and interdisciplinary research is urgently needed. The series Interdisciplinary Studies in Human Rights recognizes the growing importance and necessity of interdisciplinary research in human rights. The series consists of monographs and collected volumes addressing human rights research from different disciplinary and interdisciplinary perspectives, including but not limited to philosophy, law, political science, education, and medical ethics. Its goal is to explore new and contested questions such as the extraterritorial application of human rights and their relevance for non-state actors, as well as the philosophical and theoretical foundations of human rights. The series also addresses policy questions of current interest including the human rights of migrants and refugees, LGBTI rights, and bioethics, as well as business and human rights. The series editors are Members of the Centre for Human Rights ErlangenNürnberg (CHREN), an interdisciplinary research center at Friedrich-AlexanderUniversity Erlangen-Nürnberg. The Advisory Board brings together human rights scholars from a wide range of academic disciplines and regional backgrounds. The series welcomes suggestions for publications of academic research falling into the series subject matter. More information about this series at http://www.springer.com/series/15339

Vivian Kube

EU Human Rights, International Investment Law and Participation Operationalizing the EU Foreign Policy Objective to Global Human Rights Protection

Vivian Kube Hamburg, Germany

ISSN 2509-2960 ISSN 2509-2979 (electronic) Interdisciplinary Studies in Human Rights ISBN 978-3-030-20606-2 ISBN 978-3-030-20607-9 (eBook) https://doi.org/10.1007/978-3-030-20607-9 © Springer Nature Switzerland AG 2019 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Acknowledgments

The four-and-a-half years, which I was allowed to spend at the EUI while writing the thesis this book is based on, will certainly be one of the greatest learning experiences of my life—intellectually, professionally and personally. The first words of gratitude have to be dedicated to the person who made possible both embarking on this journey and completing it, my supervisor, Professor Marise Cremona. I am deeply thankful for the trust she had in me and in my work— not only in the moment she took me on board as her supervisee, but also throughout these years. I was in many aspects a beginner and it is thanks to her trust in me, her encouragement and guidance that I soon felt equipped to navigate myself through the research fields, the diverse methods one can draw on and academic professional life. With trust comes freedom, and I would like to thank Marise for the incredible freedom I had for developing and testing my own ideas in my research as well as in the pursuit of other projects including those in the framework of the EU External Relations working group. Yet, at the same time, the door to her office and therewith to a stimulating discussion and good advice was always open. Besides having had the enormous privilege to learn from one of the greatest teachers of EU law, I could also learn a great deal about teaching and about critically engaging with others. I was always impressed by how she approached other researchers with genuine interest and respect and never forgot to listen—not even in the most hectic times. This book benefited extensively from the input of many great minds I met along the way of my research. Their ways of thinking and their profound knowledge certainly left an imprint on my work and will continue to influence it in the future. The support I received and the time and patience that were dedicated to discussing my research still leaves me impressed and will shape my way of approaching other people’s work. Among those are the other members of my jury, Professor Joanne Scott, Professor Olivier De Schutter and Professor Markus Krajewski. I feel deeply honored by having received such thorough and encouraging feedback from this extraordinary jury. I would like to especially express my gratitude to Professor Krajewski who supported me and my research early on with an invitation to teach at his university. The many things I learned during my stay at the University of Erlangen

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Acknowledgments

and while following Markus and his team in the midst of the TTIP debates would turn out to be deeply influential for my research and my visions of academia. Another milestone for my way of thinking about international economic law and my academic development was the tremendous support of Professor Ulli Petersmann. I am incredibly thankful for all the opportunities he offered to me—to attend conferences together, to collaborate on publications and to co-teach a seminar. I am also indebted to all the discussants and members of the EU External Relations working group and of the EUI Law in Action working group as well as the entire faculty of the EUI. Although all of them deserve special credit, I would like to particularly thank Malte Marwedel, Ilaria Vianello, Mireia Estrada, Professor Bruno de Witte and Professor Martin Scheinin for their time, support and invaluable comments. I would also like to express my gratitude towards the DAAD for granting me the scholarship that made all these possible. Having enjoyed the true privilege of meeting and engaging with all those brilliant and enthusiastic minds at the EUI, I strongly believe in the need of maintaining such a space of intellectual freedom and the importance of keeping it accessible to people from all social and financial backgrounds. It was at the European Center for Constitutional and Human Rights (ECCHR), where I first came into contact with the topic of my book. Working as an intern at this organization after law-school restored my confidence in the relevance of law for social change and taught me the importance of questioning all boundaries—whether made by law or by our minds. Until today, the network of contacts that I developed at the ECCHR, which by now includes many good friends, remains a great source of support, inspiration and encouragement. The four-and-a-half years of research that is the basis for this book have also been years of tremendous challenges. I cannot thank my family enough for bearing with me throughout this time: My brother who has been my accomplice, my friend and an inspiration as long as I can remember—in our personal and political lives, both. It must have been one of the most meaningful moments in the last years, when you came over to Florence to accompany me during the last weeks of writing the PhD thesis. My parents, who taught me more than any book ever could—about tolerance, open-mindedness, solidarity, passion, standing up for your convictions and most importantly about how to enjoy life and every simple thing it has to offer. I will be eternally thankful for your unconditional support, for believing in me and my plans—how strange and unconventional they may have sounded sometimes— and for providing me with the greatest insurance of all: a place to which I could always return, where failures and achievements do not matter. I would also like to thank my friends back home, Anna Blümel, Mara Johannsen, Lisa Lehmann, Sarah und Janina Stade, Annabell Ketels, Martin Götze, Fabian Kühne, Rico Albert, Liza Herberger and Pia Detjen for staying my closest friends, wherever I went, for all the things we have been through together, for all the great laughter, and for a treasure of memories. You might not know but you were with me at every difficult moment—standing behind me like an army that would always have my back. I would like to use this opportunity to say to Max Blümel what I unfortunately did not say before he passed away some years ago. Our conversations

Acknowledgments

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and your encouragements have greatly influenced my choices throughout these years. Your courage, strength and self-respect made me humble. Living and working within the community of the EUI has certainly been a rewarding and enriching experience, and I am truly grateful for having met so many courageous and critical minds, true visionaries, activists and great thinkers; for having experienced this environment, in which ideas are being discussed that might one day change the world and for the people I met here who—I have no doubt—have all the courage it takes to turn those ideas into reality. There is no way I can thank all those wonderful people I met at the EUI. Some, however, deserve special mentioning. Credits have to go to my writing group, Liam McHugh-Russell, Sofie Møller and Przemi Palka, for their tireless efforts in making so many of my writings—from my application to the thesis—better by far (which goes especially to ‘lmr’), for the respect with which they approached any of my ideas and for always filling me with awe. I am proud to have been part of the best football team at the EUI, the Ladybirds: Four years of trying and we made it. More than playing football, I learned that only giving 80% is sometimes enough—and always more fun. I am very grateful for all those inspiring and incredibly kind people I shared a home with: Gabo Facchini, Nicolas Aragon aka Chaco and especially James. Thank you, James, for making the last and most writing-intensive year of my PhD another great one in Florence, with curries and coziness, with art and movies, and with your wisdoms and curiosity for all the things that move the world. Among those wonderful people I met at the EUI are many I would now call my closest friends. Thank you Javo Habibi, Virginia Passalacqua, Lore Piccoli, Niels Selling, Joni Zaragoza-Cristiani, Jonas van Kalben, Johannes Jüde, Theodosia Stavroulaki, Aga Smolenska, Laura Borgese, Miriam Curci, Juan Masullo, Albert Arcarons, Quique Hernández and Maca Ares. Thank you for exploring Florence together, for passionate discussions about everything, for this wonderful mix of cultures, for the nights and days that matter, for your trust, support and love, and for all the things I learned from you. For being the salt of the earth. All of this and so much more which I cannot put into words go to the incredible ladies I met during our first weeks in Florence and who became like a family to me: Anna Kat Fleischer, Mariana Mendes and Anna Kyriazi. Thank you for everything, really! The day Pauli moved into my place must be one of the luckiest of my life. Thank you for being the most incredible friend one could wish for, for flying with me through the good times and carrying me through the tougher ones, for sharing your strength and your vulnerability, and for climbing those peaks together—in every sense of the word. If I managed to turn challenge into growth, I owe this to you. Finally, I would like to thank my boyfriend, Ludvig, who I met during the first months at the EUI and who helped me to transition from the LL.M. to the PhD and with everything that came after. Thank you for being there and for staying—throughout all these turbulent times. Thank you for making me seeing things with different eyes. Thank you for walking with me on this professional and personal journey. It was the best of times, it was the worst of times. It was an age of wisdom, it was an age of foolishness. Thank you all—it has been a great adventure.

Contents

1 Introduction: The EU Objective to Global Human Rights Protection and Becoming an Actor in International Investment Law�� 1 1.1 A Short Summary of the Findings�� 1 1.2 The Research Question �� 2 1.3 The Structure and the Methods �� 4 References�� 8 Part I The Legal Equipment: Competence, Constraints and Objectives 2 EU Human Rights as a Framework for Foreign Policies�� 11 2.1 Human Rights as a General Objective and Principle�� 12 2.2 Applicable Human Rights Norms and Their Relation to the Human Rights Objective �� 15 2.2.1 Human Rights as International Law�� 17 2.2.2 The EU Charter of Fundamental Rights: Responsibility Beyond the Territorial Paradigm �� 29 2.2.3 Conclusion�� 38 2.3 Other Provisions Governing EU Investment Policy�� 39 2.3.1 Specific Objective of Investment Liberalization �� 39 2.3.2 Principle of Coherence�� 45 2.3.3 Other External Objectives and Principles �� 47 2.3.4 Other Constitutional Principles �� 49 2.3.5 General Horizontal Clauses�� 50 2.3.6 Conclusion�� 51 2.4 Policy Implications�� 52 2.4.1 Competence: The ‘Can’�� 52 2.4.2 Obligations and Constraints: The ‘Must’�� 67 2.5 Judicial Implications �� 75 2.5.1 Expansion of the Legal Protection of Individuals Outside the EU?�� 77 ix

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2.5.2 New Benchmarks for Material Legality? �� 80 2.5.3 Conclusion�� 84 2.6 Conclusion�� 85 References�� 86

3 The International Investment Competence of the EU�� 93 3.1 Introduction �� 94 3.2 The Traditional Scope of International Investment Regulation �� 96 3.3 The Common Commercial Policy: Exclusive Competence�� 97 3.3.1 Foreign Direct Investment, Portfolio and Other Forms of Investment�� 98 3.3.2 Market Access and Post Admission Protection�� 101 3.3.3 Limitation on Grounds of Art. 345 TFEU�� 105 3.4 Investment Powers Under Other Treaty Competences�� 107 3.4.1 Free Movement of Capital and Payments �� 107 3.4.2 Implied Exclusive Powers �� 109 3.4.3 Implied Shared Powers�� 112 3.5 Derogations �� 113 3.6 Investor-State-Dispute Settlement�� 114 3.7 Termination of Member States’ BITs �� 118 3.8 Summing Up: Mapping the Competences and Discussing the Options�� 119 3.9 The Remaining Role for Member States�� 121 3.10 Conclusion�� 124 References�� 125 Part II The Context: Entering an Unjust Regime? 4 Tensions Between the International Investment Regime and Human Rights: A Regulatory Tilt? �� 131 4.1 Introduction �� 132 4.2 Overview of the Emergence of International Investment Law�� 132 4.3 Substantive International Investment Law: The Investor Privileges�� 142 4.3.1 Scope of Protection �� 143 4.3.2 Protection Against Direct and Indirect Expropriation�� 152 4.3.3 Fair and Equitable Treatment�� 161 4.3.4 Full Protection and Security�� 173 4.3.5 National Treatment�� 175 4.3.6 Umbrella Clause and the Stabilization Clause�� 176 4.3.7 Conclusion �� 182 4.4 International Investment Arbitration: Entry Barriers for Other Interests �� 182 4.4.1 Introduction �� 182 4.4.2 Procedural Exclusion of Third Parties�� 183

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4.4.3 The Set-Up and Composition of ISDS Tribunals: Bias in the System�� 187 4.5 Conclusion�� 192 References�� 193

5 The EU Approach to International Investment Agreements�� 199 5.1 Introduction �� 199 5.2 Reformed Substantive Provisions �� 200 5.2.1 Definition of Investor, Investment and Jurisdiction�� 200 5.2.2 Protection Against Expropriation�� 205 5.2.3 Fair and Equitable Treatment�� 208 5.2.4 Full Protection and Security�� 213 5.2.5 National Treatment�� 214 5.2.6 The Umbrella Clause�� 214 5.2.7 Non-Derogation and Non-Lowering of Standards �� 216 5.2.8 Most-Favoured-Nation Standard�� 218 5.2.9 Preamble�� 219 5.2.10 Including an Expressed Right to Regulate �� 219 5.2.11 Interpretative Declarations�� 222 5.2.12 Exclusion of Direct Effect�� 223 5.2.13 The Trade and Sustainable Development Chapter�� 224 5.2.14 In Sum: The Place for Human Rights �� 226 5.3 Reforms of the Arbitration System �� 227 5.3.1 Third Party Participation �� 228 5.3.2 The Reformed ISDS or the Investment Court System �� 229 5.4 Conclusion�� 234 References�� 236 Part III Resolving the Failures, Utilizing the Possibilities: Two Proposals 6 Assessment and Participation Through Human Rights Impact Assessments�� 241 6.1 Introduction �� 241 6.2 The Legal Framework �� 243 6.2.1 The International Human Rights Approach to HRIA �� 243 6.2.2 Other Relevant Constitutional Principles of EU Law �� 247 6.2.3 Summarizing the Legal Framework for HRIA�� 261 6.3 The EU Rules on Human Rights Impact Assessments�� 262 6.3.1 The Design According to EU Soft Law�� 263 6.3.2 Procedures �� 268 6.3.3 Legal Consequences: Linking the Results to the Final Decision �� 272 6.3.4 Conclusion on the Implementing Rules �� 274 6.4 The Practice: Examples of Shortcomings and Potential �� 276 6.4.1 Substantive Scope �� 277 6.4.2 Inclusive Participation and Balanced Representation �� 278

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6.4.3 Transparency and Independence �� 280 6.4.4 Conceptual Limitations as to the Legal Consequences, the Possibility to Influence and the Substantive Scope �� 281 6.5 Conclusion�� 285 References�� 286

7 Consultation and Participation Through Domestic Advisory Groups and Civil Society Meetings�� 289 7.1 Introduction �� 289 7.2 The Legal Framework �� 291 7.2.1 Duty to Assess the EU’s Own Action�� 291 7.2.2 Duty to Promote: Realizing Human Rights Through Participation and Empowerment �� 298 7.2.3 Conclusion on the Parameters�� 306 7.3 Potential and Shortcomings of the Current Concept, Set Up and Practice �� 307 7.3.1 The Institutional Design�� 308 7.3.2 The Practice�� 311 7.4 Summary of the Criticism and Necessary Reforms�� 316 7.4.1 Conceptual Limitations and Substantive Scope �� 316 7.4.2 Independence�� 318 7.4.3 Guaranteeing Inclusiveness�� 318 7.4.4 Room for True Contestation�� 319 7.4.5 Real Influence and the Lack of Any Institutionalized Response Mechanisms �� 319 7.5 Conclusion�� 320 References�� 321 8 Concluding Remarks on the EU Obligation to Empower Neglected Interests and on Ways Forward to More Inclusive Global Economic Regulation�� 323 References�� 329

Chapter 1

Introduction: The EU Objective to Global Human Rights Protection and Becoming an Actor in International Investment Law

Somewhere in Gujarat is increased wealth deriving from foreign investment, but she doesn’t have it. To her hearing that GDP per capita has increased nicely is like being told that somewhere in Gujarat there is a beautiful painting, only she can’t look at it, or a table set with delicious food, only she can’t have any.—(Nussbaum 2011, p. 13)

Abstract This book uses the case of the international investment regime and the EU human rights framework to explore what it means to integrate global human rights protection and promotion into foreign policy making. It thereby focuses on the root causes of the detrimental effects of the current investment regime for human rights protection and advancement, that is the exclusion of locally marginalized groups from the law making and adjudication stages. This exclusion is due to a lack of means both at substantive and at procedural level for marginalized groups to articulate their interests in legally relevant terms. This book looks for concrete methods that can be grounded in EU constitutional law and that are able to overcome the perpetuation of exclusion in economic regulation.

1.1 A Short Summary of the Findings The first part of the book outlines the legal foundations for the European Union (EU) to become a shaper of the international investment regime. These legal foundations are firstly human rights as a general principle and objective, the EU Charter of Fundamental Rights and international human rights law and secondly the international investment competence of the EU. The second part of the book demonstrates the inaccessibility of the current international investment regime for human rights interests and shows that recent EU reforms fail to address the major inequalities of rights protection inherent in the investment regime. This regulatory tilt is however © Springer Nature Switzerland AG 2019 V. Kube, EU Human Rights, International Investment Law and Participation, Interdisciplinary Studies in Human Rights 4, https://doi.org/10.1007/978-3-030-20607-9_1

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1 Introduction: The EU Objective to Global Human Rights Protection and Becoming…

difficult to uphold in light of the normative framework established by the first part. The third part analyses two mechanisms, which were developed in the trade context: Ex-ante human rights impact assessments and civil society monitoring bodies of EU trade and sustainable development chapters. This part explores whether these mechanisms could work towards mitigating the inequalities of rights protection. The potential of these mechanisms lies in their capacities to ensure a comprehensive assessment of policy impacts as well as to empower traditionally marginalized rights-holders to participate in the making, implementation and contestation of the international investment regime. These two methods—comprehensive assessment of policy impacts and empowerment of rights-holders—are embedded in other EU structural principles and the international human rights discourse and would, so this part argues, enable the EU to discharge its human rights obligations. To seize this potential, substantial reforms and a shift of conceptions are however still necessary. This part also analyses what parameters need to be changed in order to utilize these mechanisms for building sustainable institutions that enable marginalized local communities to inject their interests into the design and implementation of international investment regulations. Next to providing concrete proposals, this book therefore also demonstrates in a generalizable manner how the broad constitutional human rights mandate can gain precise shape and be broken down into clear benchmarks to which EU international economic law making can be held accountable to.

1.2 The Research Question This book demonstrates how the human rights framework that governs external relations of the EU can be operationalized in the realm of international economic law making and implementation, with a specific focus on the international investment regime. Thereby this book shows how the process of EU international economic law making can become legally measurable in human rights terms. This research question is set at an interesting junction where specific constitutional amendments of the EU allow and require the revisiting of an international legal regime that is both highly contested and defended. As such, it is inevitable that the EU, as a new actor on the international investment scene, adopts positions. These specific constitutional circumstances, brought about by the Lisbon Treaty reforms, relate to the human rights framework of the EU in which a global focus (the duty to promote and the commitment to indivisibility and universality of human rights as well as to non-discrimination) features prominently. Part of this human rights framework is the new architecture of external policy making. Within that architecture, general guiding principles and objectives overarch all foreign policy making and implementation, including the objective and principle of global protection and promotion of human rights, Article 21 (2)(b), (3) and Article 3(5) TEU. Another pillar of this human rights framework is the Charter of Fundamental Rights which was elevated to the status of primary law. The legal consequences of

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these constitutional changes were however highly disputed by policy makers and within legal scholarship.1 In May 2017, the landmark decision Opinion 2/15 of the European Court of Justice (ECJ) on the question of EU competence for concluding the “new generation” of comprehensive trade and investment agreements2 added some legal clarity by stating that the EU is under an obligation to integrate the objectives and principles into its common commercial policy (CCP).3 While finally making clear that these objectives and principles are indeed legally relevant, the question of what it means to integrate global human rights protection and promotion into foreign policy making, and in this case into investment policy, is left open. It is this question, this book aims to answer. This book argues that the dismissal by parts of the literature of any clear obligations flowing from the general policy objectives is partly due to the fact that this literature did not attempt to analyze a specific policy objective in its legal context and in a specific factual situation. In this respect, the second constitutional amendment brought about by the Lisbon Treaty provides a useful field for investigation. Due to the competence expansion of the CCP, the EU is assuming a major role in international investment law. The EU accompanied with its constitutional mandates of human rights protection and promotion is newly entering a pre-existing legal regime but in contrast to a legal regime that is mainly based on a multilateral institution, the bilateral structures give the EU the power to change at least the European influence in this field of law. The major criticism of EU citizens levelled against the new investment deals, such as the Transatlantic Trade and Investment Partnership Agreement with the US (TTIP) and the EU-Canada Comprehensive Economic and Trade Agreement (CETA), already compelled the EU to rethink traditional approaches and prompted numerous reform attempts. However, despite some marginal tweaks of the substantive law and more substantial changes of investment arbitration, the EU approaches still fail to remedy the root causes of the detrimental effects in the current investment regime for human rights protection and advancement. Besides the insufficiencies in terms of outcome, the methods leading to these reforms also lack transparency. It is hard to discern how the human rights framework actually influenced the investment policy making cycle. Therefore, this book proposes policy instruments and methods for operationalizing the human rights framework, for rendering decision-making and the integration 1 A detailed discussion of the opinions expressed in the respective literature and by policy makers is to be found in Chap. 2. 2 In 2006 (and repeatedly in 2010), the EU Commission elaborated on its strategy to conclude a “new generation” of trade agreements, that are not limited to traditional provisions reducing tariffs and other barriers to the trade in goods and services, but will cover multiple areas of international economic regulation (such as public procurement, competition policy, investment protection, the mutual recognition of professional qualifications and intellectual property rights), see, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions ‘Towards a comprehensive European international investment policy’, COM/2010/0343 final. 3 Opinion 2/15, Singapore, ECLI: EU:C:2017:376, Judgment of 16 May 2017, paras 141, 142.

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of foreign policy objectives transparent, and for making the procedures as well as the results legally measurable against abstract constitutional principles. In contrast to warranted criticisms of the investment regime’s negative impacts for the EU internally, this book focuses on the human rights situation in the host states of European investors and especially on those that carry a double burden of exclusion by not being able to rely on their governments to represent their rights adequately in international investment making and arbitration.4 Ultimately, this book aims to provide a conceptual framework of what it means to respect and promote human rights globally with the means available in international relations and by doing so—in contrast to the approaches proposing withdrawals from the international investment regime—draw attention to the ‘emancipatory chances’ that might lie in a fair global economic regulation.

1.3 The Structure and the Methods The book is divided into three parts, with two chapters each. The introductions of part II and III explain how the parts build on each other and make clear how one step leads to the next. It is therefore recommended to read these introductions. Part I outlines the legal framework of the EU (the human rights framework and the competence over international investment regulation) that provide the legal grounds and the analytical framework on which the proposed responses are based. This part applies a positivist, legal-descriptive analysis of EU constitutional law, international human rights law, international investment law and related case-law. In the absence of explicit case-law and subsequent concretizing law, the approach towards the human rights objective and principle can be described as doctrinal-constructivist.5 The external EU human rights framework consists of four elements. These are first, the foreign policy objectives and principles that instruct the policy makers on the scope of their competence (the ‘can’) and their obligations (the ‘must’), second, the EU Charter of Fundamental Rights (CFR), third, international human rights that 4 Whereas I focus on ‘developing countries’, I am aware of the inherent bias in this approach, the pitfalls of this terminology and that inequalities are also persistent in ‘developed countries’ and are likely to be effected by international investment law. This choice however is first limited by the states that were the first to negotiate investment treaties with the EU and second provides clear examples. However, the conclusions of this book are transferable to the context of developed countries. This approach is not suggesting that an introspection into the EU in the context of economic regulation is not also necessary. 5 The human rights objective and principle as a constitutional principle or objective does not explicitly prescribe the obligations that follow or the detailed methods that would lead to discharging those. As Armin von Bogdandy summarizes, looking at one constitutional principle in isolation would hardly give any answers. Nevertheless, precise obligations can be deduced from those principles when one, on one hand understands them as part of the ‘idea as a whole’, and on the other puts them into a specific context. See, von Bogdandy (2010), p. 98.

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give substantive content to the human rights objective and principle, and fourth, other general procedural principles of EU law that guide external policy making. Chapter 2 outlines the policy implications stemming from the post-Lisbon formation of competences and indicates to what extent the EU human rights framework is imperative for the foreign policy maker. The chapter argues in particular that the impact of the human rights objective on external competences requires rethinking previous human rights approaches in the foreign policy context that were conceptually too narrow. That is because they were limited to view human rights as a development concern and failed to capture human rights threats stemming from or being perpetuated by EU trade policies. In terms of obligations, this chapter draws up an analytical framework in which the obligations are broken down into the obligation to respect, that entails continuous assessment, and the obligation to promote, which entails a prohibition of regression, a duty to be coherent and to contribute to human rights realization. Further, it briefly explores the judicial implications and especially how the procedural requirements stemming from the EU human rights framework make the wide discretion usually enjoyed by the foreign policy makers in the contexts of economic relations and complex assessments judicially reviewable. Chapter 3 is concerned with EU competence in the field of international investment regulation and with the role that the EU can play in shaping it. It therefore delineates the regulatory reach of the EU with regards to international investment relations in order to subsequently determine which areas should be governed by the EU human rights framework. By doing so, this chapter pursues two aims. One is to discuss the scope of the EU’s exclusive competence and to explain how the EU human rights framework still influences those parts not covered by exclusivity. As a second aim, the detailed discussion of the current scope of the CCP and its development serves to shed light on where the definitions of CCP’s exhibit some flexibility in order to further emphasize the importance of the constraining effecst of the human rights framework. In addition, this chapter discusses the fact that some conventional regulatory aspects fall under shared or exclusive Member States competence. In this context, this chapter makes the argument that the legal effects of the human rights framework in fact go beyond the confines of EU exclusive competence. This is the case first because human rights form part of the fundamental core of EU law and by virtue of being fundamental engage Member State’s exclusive competence. Second, this is the case because of the constraints on Member State action flowing from the duty of sincere corporation that is geared towards safeguarding Union objectives. As a consequence of both, the substantive instructions for formulating an investment policy will be largely determined by EU law including its human rights framework. Part II looks in more detail into the field of international investment law as well as into the emerging EU approaches. This part is built on a comprehensive survey of all publicly available arbitral proceedings until 2017 in which human rights violations either formally played a role or were part of the factual context.6 The latter 6 This survey includes 50 cases in which all or some of the documents were available. The results of this survey have been published here, Kube and Petersmann (2018).

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means the survey includes those cases in which human rights have featured prominently in the scholarly or public debates surrounding such proceedings and those in which human rights relevance can be assumed based on reports in the media or by civil society organizations (CSOs). Chapter 4 demonstrates that this field of law is particularly exclusionary; it perpetuates human rights violations and discrimination existing at national level. That is the case because it only grants access to the shaping and the implementation of the law including the adjudication to certain actors. Further, it is putting any regulation and state action under an assumption of breach that constrains economic activity and reduces profits of foreign investors. This may include state measures aiming for human rights advancement and for combatting exclusion such as affirmative action, redistributive justice or the protection of the most vulnerable parts of society. This chapter also discusses the recent increased openness towards human rights in international investment law, but concludes that such counter-movements are still instable. This conclusion is based on the inconsistency of the responses applied towards human rights claims, the lack of any authoritative methodology for such responses and a selective and therefore allegedly biased integration of only certain human rights and methodology such as those related to property rights and denial of justice. This selective approach is manifesting the investor privilege and is not compatible with the indivisibility paradigm of human rights law. Chapter 4 also explains how human rights interests, especially of those who are politically marginalized at local level, remain excluded at the procedural stage. The latter is due to several entry barriers such as the lack of legal standing and inconsistent and non-transparent approaches towards amicus curiae submission and a limited interest on the part of the host states in spelling out their own human rights obligations (and even less so their failures) in investment arbitration. Chapter 5 analyses the EU’s position towards the human rights tensions problems as well as towards the counter-movements identified in Chap. 4. Chapter 5 takes the negotiated texts of EU-Singapore free trade agreement (FTA) (as of 17 October 2014), the EU-Vietnam FTA (as of 1 February 2016) and on the CETA (as of 14 September 2016)7 as well as communications and resolutions of the relevant EU institutions as starting points. After Opinion 2/15, the EU decided to not pursue the conclusion of comprehensive FTAs with Singapore and Vietnam as EU-only agreements. The results of the negotiations with Singapore as well as with Vietnam were adjusted to create two standalone agreements respectively: an FTA and an Investment Protection Agreement (IPA).8 However, the protection standards 7 CETA entered into force provisionally on 21 September 2017. At the time of writing, the national parliaments in EU countries have still to approve it before it can take full effect. 8 The draft trade and investment agreements between the EU and Singapore were signed on 19 October 2018 and received the consent of the European Parliament on 13 February 2019 (in the following: FTA Singapore 2018). As the time of writing, the IPA still awaits ratification by all EU Member States (in the following: IPA Singapore). In October 2018, the European Commission adopted the EU-Vietnam trade and investment agreements (in the following: FTA Vietnam 2018 and IPA Vietnam). At the time of writing, the legal reviews of both agreements are still ongoing. Subsequently, the IPA will need to be ratified by the EU Member States.

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remained largely the same as in the FTAs cited here and are likely to remain the base for the future EU policy.9 This chapter shows that the reforms mainly targeted the procedural level, where substantial innovations were achieved. Nevertheless, the procedural reforms did not include legal standing for third parties and the substantive reforms did not add either sufficient textual authority for articulating the human rights claims or sufficient methodological instructions for the arbitrators on how to respond to those. Further, the focus on the right to regulate fails as a reliable protection mechanism in particular for the most vulnerable and marginalized groups in the host states of foreign investors by overlooking that governments with dubious human rights records are often complicit in or at least not capable of preventing corporate human rights abuses. Instead of relying on the facilitation of amicus curiae interventions or carving out domestic policy space, this book therefore explores whether other mechanisms of EU trade agreements can be harnessed to grant direct access of underrepresented citizens to the making and implementation stages of investment agreements. Hence, Part III proposes to reform the EU investment policy making cycle from a different angle, that is legally possible and to some extent required from an EU constitutional law perspective and that could overcome the deeply rooted bias. Instead of the current EU approach, Part III focuses on non-litigation methods that aim for enabling access to law-making and review and therefore ideally also the contestation of processes and outcomes. These mechanisms are human rights impact assessments (HRIAs) that are part of the negotiation phase (Chap. 6) and civil society meetings (CSMs) and domestic advisory groups (DAGs) that are being established by EU trade agreements as monitoring bodies of the trade and sustainable development chapters (SD chapter) (Chap. 7). Next to the relevant literature, both chapters rely on the few empirical studies that were conducted in the specific field of EU SD chapters, and a few self-conducted, semi-structured interviews with participants of EU DAGs and CSMs, as well as with close observers of such. In the proposed version of both mechanisms—HRIAs and the monitoring bodies—the major vehicles for overcoming the inequality of human rights protection are the two strategies of comprehensive assessment and empowerment of the rights-holder. Applying the abstract human rights framework outlined in Chap. 2 in conjunction with other applicable EU constitutional principles as well as international human rights law brings to the fore on one hand the inconsistencies between the human rights requirements and EU action and on the other hand that the possibilities provided by EU law have not yet been exhausted. Part III argues that, while the EU legal framework provides a sufficient basis for developing these strategies, the two mechanisms have not yet delivered this promise in the investment context. Therefore, Chaps. 6 and 7 analyse what parameters need to be changed in order to 9 Whenever changes between the texts of the FTA Singapore of 2014 and that of 2018 as well as between the texts of the FTA Vietnam of 2016 and that of 2018 have occurred, those are indicated. However, since both have not yet entered into force at the time of writing further changes might still occur. CETA has provisionally entered into force and therefore serves as the main reference point.

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utilize these mechanisms for building sustainable institutions that enable marginalized local communities to inject their interests into the design, implementation and contestation of international investment regulations.10

References Kennedy D (2002) The international human rights movement: part of the problem? Harv Hum Rights J 15:101–125 Kube V, Petersmann E-U (2018) Human rights law in international investment arbitration. In: Gattini A, Tanzi A, Fontanelli F (eds) General principles of law and international investment arbitration. Brill Nijhoff, Leiden, p 221 Nussbaum MC (2011) Creating capabilities: the human development approach. Belknap Press of Harvard University Press, Cambridge von Bogdandy A (2010) Founding principles of EU law: a theoretical and doctrinal sketch. Eur Law J 16:95–111. https://doi.org/10.1111/j.1468-0386.2009.00500.x

A common concern broadly levelled against efforts aiming for substantiation of the EU’s obligation to human rights promotion, revolves around value imperialism. Apart from the fact that this is the constitutional choice this book applies, there are also good reasons that speak against this criticism. First, the human rights promotion does not necessarily result in the imposition of the EU Charter of Fundamental Rights on others; instead this obligation is about exploring what the CFR and the EU human rights framework mean for the EU and how they should affect its policy making and implementation. This—as this book shows—can translate in many ways of how the EU has to construct its relations to non-EU citizens. The strategies of participation and empowerment are particularly useful to counter value imposition as they ideally should allow for discussion, choice and contestation. The focus of this book is more over not to globally impose certain rights in isolation but to highlight inconsistencies of the EU’s investment policies and to explore the requirements that follow from the EU human rights framework to balance and prevent harmful effects of the former and ideally to better ensure equal distribution of it gains. Further, this book shares the assumption that the fact that the human rights concept as such was historically a “western invention” does not suffice to condemn any cross-cultural exchange as domination. See, Nussbaum (2011), pp. 102–103. In contrast, one should be attentive to who formulates such objections and to the self-perception of the rights-holder. Further, international human rights are so far the only universal standard we have. Therefore, human rights as a concept is a valuable starting point in the absence of an alternative which does not liberate from discussing their pitfalls. See, Kennedy (2002), p. 110.

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Part I

The Legal Equipment: Competence, Constraints and Objectives

Chapter 2

EU Human Rights as a Framework for Foreign Policies

Abstract This chapter explores how different EU law sources of human rights should influence EU investment policy making. This analysis takes the foreign policy objective and principle that demand global human rights protection and promotion, as stipulated in Article 21 and 3(5) TEU, as a starting point, but is not limited to it. International human rights norms and the Charter form important pillars of the EU human rights obligations. This analysis however approaches the examination of the entire EU human rights framework in relation to Article 21 TEU and 3(5) TEU as explicit directives for the former’s application to EU trade and investment policies. Section 2.1 contrasts the approach adopted in this book to the previous attempts to grasp the specific category of human rights protection as a foreign policy objective, which mainly excluded the imposition of strict human rights obligations on the EU foreign policy maker. Section 2.2 discusses the applicability of international human rights norms and specifically of the Charter to EU investment policy making and puts them in relation to the foreign policy objective. Based on the recent developments in international human rights, a territorially unconfined application of the Charter and supporting EU case-law, this section rebuts claims for a limited relevance of human rights in international economic regulation. Section 2.3 discusses the relevance of the EU human rights framework in relation to other substantive and procedural norms that shape EU investment policy. The specific objective of trade liberalization that gained emphasis in the post-Lisbon Treaties raises questions regarding any constitutionally mandated prioritization. Section 2.4 indicates that policy implications can be derived from the human rights framework. How these policy implications operate precisely and are judicially reviewable, is demonstrated in Part III by means of examining concrete policy tools for their capability to counter severe inequalities of human rights protection which are prevalent in the current international investment regime and which the EU so far has appropriated with only marginal mitigations as Part II reveals. Section 2.4 provides the legal grounds for more adequate responses by explaining that the EU has the necessary competence (the ‘can’) and is to some extent required (the ‘must’) to rethink previous human rights approaches that were conceptually too narrow in © Springer Nature Switzerland AG 2019 V. Kube, EU Human Rights, International Investment Law and Participation, Interdisciplinary Studies in Human Rights 4, https://doi.org/10.1007/978-3-030-20607-9_2

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that they were limited to view human rights as a development concern and failed to capture human rights threats stemming from or being perpetuated by EU trade policies. Section 2.5 considers the judicial implications of the EU human rights framework in the context of trade and investment policies. It confronts claims for limited extraterritorial effect of EU acts and consequentially restricted possibilities to judicially challenge those. It further summarizes the relevance of the EU human rights framework for the judicially reviewable legality of EU acts—the latter issue constitutes a common thread throughout this chapter.

2.1 Human Rights as a General Objective and Principle The reforms of the Lisbon Treaty fundamentally changed the constitutional architecture of EU external action.1 Previously, the objective of ‘development and consolidation of respect for human rights’ was a specific objective of development policy2 economic, financial and technical cooperation3 and the Common Foreign and Security Policy (CFSP).4 Today, next to specific policy objectives, general guiding principles and objectives overarch all foreign policy fields with a central role for the global protection and promotion of human rights. Concretely, Article 21(1) of the Treaty on European Union (TEU) stipulates that ‘[t]he Union’s action on the international scene shall be guided by the principles which have inspired its own creation, development and enlargement, and which it seeks to advance in the wider world: democracy, the rule of law, the universality and indivisibility of human rights and fundamental freedoms, respect for human dignity, the principles of equality and solidarity, and respect for the principles of the United Nations Charter and international law.’ Art. 21(2) (b) then specifies that ‘[t]he Union shall define and pursue common policies and actions, and shall work for a high degree of cooperation in all fields of international relations, in order to: […] consolidate and support […] human rights […].’ The specific external policies in turn explicitly refer back to these guiding principles and objectives. Art. 207 TFEU on the common commercial policy (CCP), for instance, affirms that ‘[t]he common commercial policy shall be conducted in the context of the principles and objectives of the Union’s external action.’ Human rights frame EU external action as a founding value (Article 3(5) in conjunction with Article 2 TEU), as a guiding principle (Article 21(1) TEU) and as an

1 The term ‘constitution’ is used based on the conviction that its decisive criteria are the functions and merits of a legal system which in case of EU primary law arguably reflect constitutional character and less so on its labelling. In this regard, see, Von Bogdandy (2010), p. 96. 2 Art. 177(2) of the Treaty establishing the European Community of 2002, OJ C 325/33 (ex-TEC). 3 Art. 181a(1) ex-TEC. 4 Art. 11(1) of the Treaty on the European Union of 2002, OJ C 325/01 (ex-TEU).

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objective (Article 21(2)(b) TEU).5 As a value, the respect for human rights should be upheld and promoted. The principle of universality and indivisibility of human rights should guide EU’s external action. The consolidation and support of human rights is the objective according to which the external policies shall be defined and implemented. Article 21(3) TEU adds that ‘the Union shall respect the principles and pursue the objectives […] in the development and implementation of the different areas of the Union’s external action […] and of the external aspects of its other policies.’ The legal significance of this foreign policy objective was disputed within legal scholarship. One strand in the literature limits the legal effects of this ‘wish list for a better world’6 to at most being capable of functioning as interpretative guidance.7 As Joris Larik rightly points out, this notion seems to represent the minimum consensus.8 Another strand considers them as binding in that they entail a duty to take into account and as well as clear constraints on policy making,9 without however having defined such. Within the second strand, some limit the legal consequences to a duty to optimization. Building on Alexy’s notion of ‘optimization’, Kotzur entertains the argument that the EU is under a constant duty to pursue the realization of the objectives within the boundaries of feasibility.10 Larik agrees with limiting the obligation to optimization instead of requiring ‘strict compliance’ with regards to those objectives that are of ‘imperfectible’ nature, as they cannot be entirely achieved.11 However, this book will demonstrate that it is possible to distill concrete legal obligations and imperatives for the policy maker from the human rights objective and thereby show that procedural human rights compliance and promotion is not ‘imperfectable’ in nature. The approach adopted by this book differs in three ways from the main in-depth analysis of the EU foreign policy objectives conducted by Larik which builds on the discourse elaborated in the context of nation state policy objectives (for instance, the discourse on the German ‘Staatszielbestimmungen’).12

5 This paper will not discuss the meaning of Article 21(2)(a) TEU which also refers to values and hence to human rights. Since Article 21(2)(b) TEU speaks explicitly of human rights, it can be seen as lex specialis. Further, Article 21(2)(a) TEU appears to be concerned with safeguarding the internal integrity, security and own interests against external threats, which is not the focus of this paper. 6 Drescher (2010), p. 68. 7 Streinz et al. (2010), pp. 80–81; Drescher (2010), p. 60; Dashwood (2011), p. 24; Lenaerts et al. (2011), p. 111; Pech (2012), p. 12. 8 Larik (2016), p. 158. 9 Oeter (2013), paras 6–8; Reimer (2003), p. 1011; Krajewski (2016), Cremer (2016), Art. 21, para. 2; See, also Bartels (2014) who sees the main merits of Article 21 TEU in that it extends the scope of application of the EU’s external human rights obligations to internal policies with extraterritorial effects. 10 Kotzur (2005), pp. 313, 315–316. 11 Larik (2016), p. 157. 12 For the latter, see the comprehensive comparison by Larik (2013).

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First, it considers the human rights objective in the context of its distinct legal structures of the EU’s external constitution such as enumerated substantive competences as opposed to domestically largely unrestrained external powers of states, the role of the judiciary in defining such external competences and the institutional framework with precise rules on decision making and inter-institutional cooperation. Second, it contends that the human rights objective refers to an authoritative catalogue of rights and entitlements with robust methodology and elaborated assessment tools and hence may be more tangible than other foreign policy objectives. Therefore, this exercise also shows that different principles and objectives entail different consequences and will require different means and that it is therefore important to concretely analyze the precise consequences of each one of them, which should rebut the argument that the EU foreign policy objectives in general are just too many,13 too abstract,14 or too utopian15 to be capable of being legally operationalized. At the same time, some of the conclusions this book draws and the methods it develops for ensuring compliances may be transferrable to other principles and objectives as well. Third, this book demonstrates how the obligations and possibilities flowing from the EU human rights framework gain precise shape in relation to other general or fundamental principles of EU law that determine the processes of policy making and implementation and when seen in confrontation with a specific factual problem. Thereby this approach does not aim to falsify previous approaches but to concretize what so far remained ambiguous. Further, this approach adds to the previous legal as well as political science scholarship which have described the EU’s mode of global governance as mainly operating through legal instruments by linking the EU’s international relations to the rule of law. This theory conceives the EU as asserting itself as a global regulator,16 normative power17 and an actor promoting and being based on the rule of law18 rather than through directly acting on the ground by military forces.19 Against this background, the clear link between human rights protection and promotion and policy making which is stressed by the human rights objective adequately addresses the core of the EU international influence as a law-maker and promoter of norms. de Witte (2008), p. 12. Terhechte (2016), paras 62, 67 arguing for the necessity of a hierarchy in light of the confusing situation (in the original: ‘unübersichtliches Gemengelange’). 15 Blockmans (2011), p. 116 mainly in relation to Article 8(1) TEU. 16 Bradford (2012). 17 Manners (2002). The specific link between ‘market-related policies’ which inform trade policies and the externalization of social norms has been elaborated in the Market Power Europe concept by Damro (2012). 18 Cremona (2011a), p. 276.; While the above mentioned theories have applied different legal and political science perspectives, they share the common premise that the EU exerts global power by exporting its legal institutions and standards to the international plane as well as to third counties’ domestic legislation by offering incentives to varying degrees such as market access or enhanced economic and political cooperation. 19 For a discussion on how the Normative Power Europe (NPE) concept can be linked to the EU general objectives, see Eeckhout (2015). 13 14

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Art. 21(2) (b) TEU states that ‘the Union shall define and pursue common policies… in order to consolidate human rights’ (emphasis added). This norm should be understood as responding to the fact the EU’s responsibility mainly operates on the policy and law-making level, where its ability to influence international relations and situations in third countries is centered. Looking at the human rights objective through that lens, it becomes clear that the human rights objective indeed entails concrete legal consequences—both as an enablement and as a constraint for EU external action. In other words, the human rights objective of EU external action expands the ‘can’ and the ‘must’ of EU external action. From a textual analysis of Article 21 and 3(5) TEU alone, one should already take note that the provisions include verbs such as consolidate, respect and uphold as well as promote, seek to advance and support. Further, all of these obligations apply to the development and implementation of all policies with external effects. Analyzing the human rights objective in relation to content giving norms, other principles of process as well as competing and delineating norms—as it is done in the following—gives substance to these instructions. The analysis of the policy objective in the context of the EU’s external competences reveals its significance for the bases of legal action, which is the first major legally significant change introduced by the normative reforms to the EU external constitution. Through the analysis of the human rights objective in relation to the EU’s extraterritorial human rights obligations its constraining function becomes clear. Based on the assumption that there is more to gain from analysing the content and nature of the policy implication in relation to the overall applicable legal framework than from unravelling these provisions into their smallest textual components, the following uses the term ‘the human rights objective’ as an umbrella term covering both the principle and the objective and instead distinguishes by the nature of the obligation, namely between the obligation to respect and the obligation to promote.

2.2 A pplicable Human Rights Norms and Their Relation to the Human Rights Objective Apart from human rights as a founding value, guiding principle and objective of external policies, the Charter of Fundamental Rights of the European Union (EU Charter/CFR)20 in conjunction with Art. 6(1) TEU introduces a full-fledged catalogue of fundamental rights into primary EU law. Additionally, fundamental rights form part of the EU legal order as general principle of Union law, which the Court of Justice of the European Union (in the following: The Court/CJEU) already 20

Charter of Fundamental Rights of the European Union, 2010 O.J. C 83/02.

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clarified in its early case-law.21 Art. 6(3) TEU codifies this jurisprudence by stipulating that ‘[f]undamental rights, as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms and as they result from the constitutional traditions common to the Member States, shall constitute general principles of the Union’s law.’ The European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR)22 is additionally partly incorporated into the EU legal order as the foundation for many Charter rights and remains a general principle of EU law. Furthermore, also international human rights obligations (as part of international customary law, general principles of international law and as part of international agreements the EU or its Member States are party to) form part of the EU human rights framework. This section explores the legal status and the added value of the commitment to global human rights protection and promotion as a foreign policy objective in relation to this patchwork of human rights commitments. It specifically sheds light on the relationship between Article 21 TEU and the substantive human rights norms that may be relevant in the context of EU investment policy making. It first discusses which human rights instruments are potentially applicable to the EU in the context of investment policy making and clarifies the relevance of the contentious issue of extraterritorial human rights obligations.23 Furthermore, the relation between the applicable human rights norms and Article 21 TEU is analyzed. In essence, it is argued that the CFR as well as international human rights law give the substantive content to the general objective and principle of human rights. Article 21 TEU should be understood as the operationalizing norm prescribing the applicability of the CFR and international human rights to external policy making and implementation. It instructs the EU on how potentially applicable human rights norms should be fed into the policy making and implementation cycle. The precise content and the scope of obligation depend on the concrete context. As Part III will show, depending on the factual situation and other principles and duties that apply to EU external law making and implementation, clear obligations and guidelines can be distilled from the human rights principle in relation to substantive norms. Depending on the concrete case, the human rights norms could add procedural requirements. The standard for the inclusion of human rights into the policy making cycle should not go below what the EU committed itself to observe in Article 21 TEU.

First recognized in Case 29–69, Erich Stauder, ECLI:EU:C:1969:57, Judgment of 12 November 1969, para. 7. 22 Council of Europe, European Convention for the Protection of Human Rights and Fundamental Freedoms, as amended by Protocols Nos. 11 and 14, 4 November 1950. 23 However, a comparison of all applicable human rights and their legal effects for investment policy making would go beyond the scope of this book. The following section therefore only discusses the different sources for human rights in the abstract. 21

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2.2.1 Human Rights as International Law 2.2.1.1 International Law as a General Objective and Principle As an international organization and clearly by virtue of its international legal personality (Art. 47 TEU) the EU is bound by customary international law. It is settled case-law that EU foreign policy powers must be interpreted in accordance with and are limited by international law.24 Art. 21 (1), (2)(b) and 3(5) TEU stress the EU’s commitment to strict observance of international law including customary international law. These general objectives hence turn the international obligation to observe customary international law during foreign policy making into an EU law requirement. In ATAA, the Court reiterates that the EU is bound to observe customary law, on the basis of Art. 3(5) TEU.25 The Court makes clear that once it has established that a norm forms part of customary international law, an EU act can be reviewed against it. What kind of human rights precisely form part of the international customary repertory is debated and in the flux. It has been suggested that most if not all rights enshrined in the UDHR are increasingly accepted as customary international law.26 Furthermore, one could, for instance, argue that the EU understands the 27 core human, labor and environmental rights conventions to which it links the GSP+ (a violation thereof triggering withdrawal of certain trade benefits) international customary law.27 This was at least the Commission’s rationale when proposing 16 of those core human rights conventions for the previous GSP.28 The scope of this book does not allow for an attempt to disentangle this controversial issue or to draw up a possible catalogue of customary human rights norms. For this book’s purpose, it suffices to state that the EU is certainly bound by the most fundamental human rights and jus cogens norms. However, identifying which human rights constitutes jus cogens norms is likewise not an easy task. There is relative agreement that the C-162/96, Racke, ECLI:EU:C:1998:293, Judgment of 16 June 1998, para. 45; Joined Cases C-402/05 P and C-415/05 P, Kadi and Al Barakaat International Foundation v Council and Commission, ECLI:EU:C:2008:461, Judgment of 2008, para. 291. 25 Case C-366/10, Air Transport Association of America (ATAA), ECLI:EU:C:2011:864, Judgment of 21 December 2011, para. 101. 26 Schutter (2014), p. 63. Oliver de Schutter and Margot Salamon understand the EU as being bound to the UDHR, see Oliver de Schutter and Margot Salomon, Legal Brief Prepared For The Special Committee Of The Hellenic Parliament On The Audit Of The Greek Debt (Debt Truth Committee), 15 June 2015, Economic Policy Conditionality, Socio-Economic Rights and International Legal Responsibility, The Case of Greece 2010–2015, 12. 27 Regulation (EU) No 978/2012 of the EP and the Council 25 October 2012 applying a scheme of generalised tariff preferences and repealing Council Regulation (EC) No 732/2008. 28 Proposal for a Council Regulation applying a scheme of generalised tariff preferences for the period from 1 January 2006 to 31 December 2008, 4. On one hand, the fact that the EU is pushing for the ratification of these conventions might also speak against any assumption of these amounting to international customary law. On the other, one could argue that the EU uses the GSP+ regime far and foremost to enforce the effective implementation of these conventions which does not speak against an understanding of them constituting custom. 24

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right to life and the prohibition on torture, arbitrary detention, slavery and forced labour amount to jus cogens.29 In relation to the human rights objective, this consideration also shows that the former would not add much if one was to reduce its meaning to customary international law. In his avis in the Polisario case, the Advocate General Wathelet asserts that from Article 21 TEU only follows that the EU has to assess its foreign policies in light of jus cogens and erga omnes norms.30 He denies the applicability of the CFR and the ECHR in the given case, because the condition of ‘effective control’ is not fulfilled. Such a reading would however negate the several references to human rights in the constitutional framework of EU foreign policies. Jus cogens and erga omnes norms are without any doubt covered by international custom as well as by the references to peace and security. Human rights accountability will be triggered in case of effective control. However, certain human rights obligations such as the conduct of a human rights impact assessment for trade and investment agreements do not depend on ‘effective control’ over a territory. The EU is not exempted from any human rights obligation if it does not exercise effective control extraterritorially. The explicit instruction to take into account human rights at the foreign policy making stage of Article 21 TEU endorses these procedural and pre-cautionary aspects of human rights obligations.31 To conclude, human rights that form part of customary international law are applicable to EU foreign investment making already due to the EU’s international legal personality. The general objectives referring to international law re-emphasize their relevance for EU foreign policy making. For the human rights objective, this means that these norms are covered as a minimum but that its content must go beyond in order for it to have any independent meaning. 2.2.1.2 International Human Rights Treaties as EU Law The following section first deals with the question to what extent international human rights stemming from human rights conventions directly apply to the EU on one hand in terms of international law (which than in turn becomes part of EU law as explained above) and on the other in terms of EU law. The latter would be the case, when the EU is party to an international human rights treaty which in turn would then form an integral part of the EU legal order according to Art. 216(2) of the Treaty on the Functioning of the European Union

Kadelbach (2006), p. 30. Case C-104/16 P, Opinion of Advocate General Wathelet, Front Polisario v Council, ECLI:EU:C:2016:677, 13 September 2016, paras 259, 276. 31 See, also Case C-263/14, Parliament v Council (Tanzania), ECLI:EU:C:2016:435, Judgment of 14 June 2016, para. 47 in which the Court states that ensuring the compliance of an international agreement with human rights is required by Article 21(2)(b) and (3) TEU without discussing explicitly that this is only the case in effective control situations. 29 30

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(TFEU) and enjoy primacy over inconsistent secondary EU law.32 Therefore, every international agreement the EU is party to creates legal obligations under international law as well as under EU law. The only human rights treaty the EU has yet ratified is the UN Disability Convention, while also contributing as a major driving force to its coming into being.33 The EU could also be considered party to a human rights treaty by way of functional succession of the human rights obligations of the Member States. The Court previously accepted a functional succession in case of the General Agreement on Tariffs and Trade (GATT) because the Member States conferred all their trade powers to the EU including their obligations.34 Therefore, it was debated whether the EU also functionally succeeded into the human rights treaties ratified by the Member States and especially also into the UN Charter, either in full or to such an extent as the EU gained competence.35 However, in the ATAA case, the Court made clear that the Union only functionally succeeds in an international agreement of the Member States, when a full transfer of powers that fall under the agreement in question has taken place, meaning that the EU acquired exclusive competence in all the fields covered by that agreement.36 Since the EU does not hold an exclusive external human rights competence,37 it is difficult to uphold the functional succession argument.38 Additionally, under EU law, the EU is obliged to not obstruct the Member States while fulfilling their international obligations even if they are incompatible with EU law. The Court confirmed the EU’s duty to not impede the international obligations of the Member States in Attorney General v Burgoa on the basis of now Article 351 TFEU.39 The Court of Justice (ECJ) famously reiterated this principle with regards Case C-61/94, Commission v Germany (International Dairy Arrangement), ECLI:EU:C:1996:313, Judgment of 10 September 1996, para. 52; Joined Cases C-402/05 P and C-415/05 P, Kadi and Al Barakaat International Foundation v Council and Commission, ECLI:EU:C:2008:461, Judgment of 2008, para. 285. 33 de Búrca (2010). 34 Joined cases 21 to 24–72, International Fruit Company, EU:C:1972:115, Judgment of 12 December 1972, paras 14–15. 35 The General Court discussed in Kadi whether the EU succeeded into the UN Charter obligations of the Member States in so far as the EU assumed the powers of the Member States and hence accepted a gradual approach of succession, Case T-315/01, Kadi, ECLI:EU:T:2005:332, Judgment of 2005, para. 203; Case T-306/01, Yusuf, ECLI:EU:T:2005:331, Judgment of 2005, para. 253. However, this was left open by the CJEU, see Joined Cases C-402/05 P and C-415/05 P, Kadi and Al Barakaat International Foundation v Council and Commission, ECLI:EU:C:2008:461, Judgment of 2008, para. 308. For an overview of the debate on functional succession in general, see Schütze (2014). 36 Case C-366/10, Air Transport Association of America (ATAA), ECLI:EU:C:2011:864, Judgment of 21 December 2011, para. 63. Critical of this high threshold, Wouters et al. (2014), p. 255. 37 Art. 3 (6) TEU as well as Art. 6(1) TEU and Art. 51(2) of the EU Charter illustrate that the linkage to human rights shall not extend the scope of competences beyond those explicitly conferred upon the EU by the Treaties. 38 Against functional succession into Member States’ human rights treaties: Bartels (2014), p. 1079. In favour: Butler I de J, The European Union and International Human Rights Law, 2011, p. 24. 39 C-812/79, Attorney General v Burgoa, ECLI:EU:C:1980:231, Judgment of 14 October 1980, para. 9. 32

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to the UN obligations of the Member States in the Kadi saga while making it clear that necessary derogations from primary law find their limits in the foundational principles of the EU legal order including human rights protections.40 Besides, also the principle of sincere cooperation places obligations on the EU, including in fields of exclusive competence.41 Therefore, even those human rights that do not directly bind the EU through de jure or de facto accession or do not form part of international customary law, nevertheless do oblige the EU to enable the Member States to realize their human rights obligations. Furthermore, the Court made it clear early on that it will assess the compliance of EU measures against the constitutional traditions common to the Member States, which includes—at least according to the guidelines—the international human rights obligations of the latter.42 Now, also Article 53 CFR prohibits any regression from the human rights standards established by the international agreements to which all Member States are party. Although the EU is not directly bound by most of the key human rights conventions such as the International Covenant on Civil and Political Rights (ICCPR) and the International Covenant on Economic, Social and Cultural Rights (ICESCR), the duty of sincere cooperation found in Article 4(3) TEU, the requirements stemming from Article 351 TFEU as well as Article 53 CFR requires the EU to interpret the human right objective as giving the widest possible effect to these international human rights. Article 351 TFEU preserves the obligations entered into prior to the accession of a Member State to the EU in cases of conflict with EU law. All of these legal bases however remain a matter of EU law and do not create obligations of the EU towards third states.43 The exact norms applicable, their precise scope and the degree of conflict between investment measures and human rights treaty obligations depend on the concrete case. Parts II and III demonstrate numerous concrete conflicts between investment rules and human rights that might occur, while Part III additionally shows that those are foreseeable and may be prevented. Nevertheless, the following section (Sect. 2.2.1.4) confronts the question of extraterritorial application and the relevance of these international human rights conventions as well as the ECHR for investment policy making. This abstract discussion is warranted for two reasons. First, to pre-empt a hasty dismissal of the relevance for international human rights for EU investment policy making.44 Second, Joined Cases C-402/05 P and C-415/05 P, Kadi and Al Barakaat International Foundation v Council and Commission, ECLI:EU:C:2008:461, Judgment of 2008, paras 301, 303–304. 41 Hillion (2009), p. 27. 42 Case 5/88, Wachauf, ECLI:EU:C:1989:321, Judgment of 13 July 1989, p. 17. 43 C-812/79, Attorney General v Burgoa, ECLI:EU:C:1980:231, Judgment of 14 October 1980, para. 9. 44 For instance, as explained above, AG Wathelet in Polisario denied a duty of the EU to even assess the impact of the trade agreement in question on international human rights, because the territory in question was not under effective control of the EU, see Case C-104/16 P, Opinion of Advocate General Wathelet, Front Polisario v Council, ECLI:EU:C:2016:677, 13 September 2016, para. 270–272. 40

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to understand how the Charter’s concept of human rights responsibility departed from conventional categories and to grasp the significance of such departure, it is useful to first outline how state responsibility is conceptualized by the key international human rights instruments and corresponding jurisprudence and thus demonstrate why ‘extraterritorial obligations’ could evolve into a separate and much debated category. Third, this discussion gives the necessary background for concluding that Article 21 TEU does not depend on direct extraterritorial accountability to be triggered. 2.2.1.3 European Convention on Human Rights (ECHR) As foreseen in Article 6(2) TEU the EU will potentially become a member to the ECHR and is arguably under an obligation to do so.45 However, in light of Opinion 2/13, in which the Court pointed to numerous incompatibilities between the draft accession agreement and EU law, this process is not likely to be completed in the very near future.46 Nevertheless, the ECHR is and has been highly relevant for the fundamental rights protection of the EU and therefore plays a special role in the EU human rights framework and in relation to Article 21 TEU. Early on, the Court declared the principles of the ECHR to constitute an integral part of the general principles of EU law.47 Through subtler judicial dialogue, explicit references and the constitutional control the European Court of Human Rights (ECtHR) exercises over EU Member States, the CJEU and the ECtHR were and are influencing each other’s legal orders beyond strict legal mandates to do so.48 Now, while Article 6(3) TEU maintains the ECHR as a source for the general principles of EU law, the ECHR and its case-law also explicitly form the foundation for many Charter rights. According to Article 52 (3) CFR, those rights that ‘correspond’ to the rights stated in the ECHR should be the same in meaning and scope as the latter. The second sentence of this provision makes clear, however, that the level of protection offered by ‘Union law’ may exceed that of the ECHR. This is especially relevant, because the restrictive understanding of the ECtHR on e xtraterritorial obligations has been interpreted as both determining the scope of Article 21 TEU49 and as a contrast to Article 21 TEU.50 Kosta et al. (2014), p. 2. For a comprehensive discussion, see the debate on verfassungsblog.de: http://www.verfassungsblog.de/category/schwerpunkte/die-eu-als-mitglied-der-menschenrechts-konvention/. Accessed 14 March 2019. 47 Case 222/84, Johnston v Chief Constable of the Royal Ulster Constabulary, ECLI:EU:C:1986:206, Judgment of 15 May 1986, para. 18. 48 Douglas-Scott (2006) and Callewaert (2009). 49 See, the argument put forward by AG Wathelet, Case C-104/16 P, Opinion of Advocate General Wathelet, Front Polisario v Council, ECLI:EU:C:2016:677, 13 September 2016, paras 270–272. 50 Bartels (2014). Lorand Bartels sees the added value in Article 21 TEU in that it covers external policies and internal policies with external effect. According to him, especially the latter is a novelty compare to the conventional human rights doctrine and especially compare to the ECHR and 45 46

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This part of the book disproves both points on two grounds.51 On a substantive level, the increased acceptance of extraterritorial obligations within the international human rights discourse has to be taken into account according to Article 21 TEU. Further, it is argued below in terms of the relation between Article 21 and the CFR that within the different pillars of the EU human rights framework, the ECtHR case-law on extraterritorial human rights obligations constitutes only the floor and not the ceiling. The EU law that partly incorporates the ECHR provides space for autonomous concepts, while the EU Charter enjoys primacy over any other international human rights instrument.52 On a structural level, in terms of the relation between the ECHR and Article 21 TEU, one should again be reminded to conceive the latter as the operationalizing norm of the multi-level human rights framework. Article 21 TEU is not a contrast to the ECtHR, but the norm that determines the application of the latter to external effects of internal as well as external policies and expands and adapts it to make it fit for the characteristics of EU external relations law. For the ECHR as a source, this means that Article 21 TEU obliges the EU to assess the ECHR’s relevance in the specific context, while allowing for law-making that goes beyond but not below the ECHR’s standards. Policy makers are required to remain attentive to an emerging doctrine on extraterritorial obligations. An assessment of those must not be excluded from the outset but must depend on the concrete case and the factual situation. 2.2.1.4 R elevance of International Human Rights for International Investment Policy Making As indicated, the relevance of international human rights obligations for EU investment policy making might be questioned because the human rights impact will occur extraterritorially. It is beyond the scope of this book to discuss the extraterritorial application for every possible human rights norm. The following section therefore focuses on identifying the international status quo of the linkage between territory, state responsibility and international investment agreements.

the Charter. With regards to the applicability of international human rights law, he identifies internal acts with extraterritorial effects as a separate category of state measures that is not covered by conventional human rights doctrine. As this section will show, the problem lies elsewhere. When the violation occurs extraterritorial but without direct impact by a state agent, it might be more difficult to establish the chain of causation in relation to the state act. However, if this can be achieved, it does not play a role whether the state act was executive, legislative, administrative or adjudicative, while in most cases the decision making happens at domestic level. In the context of the ICESCR, this is the most likely scenario. Some of the cases, that he recruits to support his argument, are discussed separately during the course of the following line of reasoning while challenging his claims. 51 See also the detailed discussion in Sect. 2.2.1.4. 52 Schorkopf (2016) EUV Art. 6 Grundrechte-Charta und EMRK. Recht Eur. Union, para. 56 arguing that the primacy follows from Art. 53 CFR, which would otherwise be redundant.

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First, under international human rights law, state responsibility hinges on whether the violation of a human rights norm occurred within a state’s jurisdiction. This concept of jurisdiction has to be distinguished from the understanding of jurisdiction under public international law.53 Human rights are applicable independently of whether a state is legitimately competent to act under public international law according to the principle of non-intervention and state sovereignty.54 Hence, human rights jurisdiction is accepted also in the case of, for instance, illegal invasion,55 occupation56 and any other exercise of public authority on a third state’s territory without consent, United Nations (UN) mandate or any other justification under international law. Despite this distinction, human rights jurisdiction remained somehow linked territory, and ‘extraterritorial obligations’ have long been controversial as the subsequent brief survey shows. The jurisdiction, or the applicability of a concrete human right, depends on the criteria established by the specific convention or the specific provision in question. Nevertheless, also in the absence of any explicit jurisdictional requirements or a rather broad and general wording in the treaties’ texts, subsequent jurisprudence and an abundance of legal scholarship treated the ‘jurisdiction linkage’ as the major threshold for state responsibility. However, the foundational human rights treaty and the one that is most referred to in EU trade agreements, the Universal Declaration of Human Rights (UDHR),57 does not contain any clause limiting its jurisdiction to any criteria. This might be explained by the fact that its purpose was rather to find globally accepted definitions than to create an enforcement tool. The definitions were to be turned operative by subsequent specified treaties and enforcement mechanisms such as the ICCPR the ICECR and further 9 core UN human rights treaties as well as regional human rights instruments. In essence, these different human rights treaties conceptualized human rights application along similar lines. Article 2(1) of the ICCPR stipulates that it applies ‘within a state’s territory and subjects to its jurisdiction’. The Human Rights Committee reads the ‘and’ as alter-

Milanovic (2011), p. 262. For a more detailed discussion, see den Heijer and Lawson (2013), p. 163. 55 In the case on Iraq’s invasion of Kuwait, for example, the Human Rights Committee made it clear that Iraq’s human rights obligations expand over the territory of Kuwait despite Iraq’s presence there being illegal, see Human Rights Councils, Fifteenth Annual Report of the Human Rights Committee (1991) UN Doc. A/46/40, at 652 (1991). 56 ICJ, Legality of the Threat or Use of Nuclear Weapons, ICJ Reports 1996 (Advisory Opinion), 8 July 1996, para. 25; ICJ, Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory, ICJ Reports 2004 (Advisory Opinion), 9 July 2004, para. 106; ICJ, Case Concerning Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v. Uganda), ICJ Reports 2005, 19 December 2005, para. 216. Nevertheless, the precise scope of protection remains debatable as well as whether and in what circumstances international humanitarian law prevails. 57 Universal Declaration of Human Rights, UN General Assembly Res 217A, UN Doc A/810 at 71 (1948). 53 54

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native and not cumulative requirements and assumes applicability whenever a state exercises effective control even if outside its territory.58 The ICESCR, which might be the most relevant for investment treaty making, only links its complaint mechanism to the contracting state’s jurisdiction.59 The scope of state responsibility, on the contrary, is not expressly limited by any provision of the convention itself. Furthermore, the ICESCR explicitly spells out the need for international cooperation and assistance.60 Despite the absence of any textual limitation to its applications, it is common ground that beyond a state’s territory some kind of special linkage between a state and the person who is deprived of its ICESC-rights (ESC rights) must exist.61 Within a state’s territory this linkage is taken as a given. For ESC rights infringements that occur extraterritorially, in contrast, establishing legal responsibility is still a rather untested field in terms of actual case-law.62 In addition, with regards to the specific obligations under the ICESCR of ‘progressive realisation’ according to ‘available resources’ (Art. 2(1) ICESCR), there has not been much clarifying case-law at the international level.63 In order to provide guidelines on what constitutes a reasonable link between a state and any person outside its territory, a group of international law and human rights experts developed the Maastricht-Principles64 based on the general principles that emerged in the case law on civil and political rights and scholarly opinion.65 The Maastricht Principles are not legally binding on States but aim to describe the status quo of applicable human rights law. Further, according to Article 38 1(d) Statute of the International Court of Justice, the scholarly works of prominent jurists is a subsidiary means for legal interpretation. They also have been recently cited by the ESC Committee.66 Principle 9 of the Maastricht Principles lays down three scenarios in which the obligations of the ICESCR apply, namely (1) when a state holds effective control over persons or over territory, (2) when the effects of an act are sufficiently foreseeable or (3) when the state is in a position to exercise decisive influence in accordance with international law. These requirements apply likewise within and outside a state’s territory, whereas they are presumed within a state’s territory. Further, prin Human Rights Committee, General Comment 31, Nature of the General Legal Obligation on States Parties to the Covenant, U.N. Doc. CCPR/C/21/Rev.1/Add.13 (2004) para 10. 59 Article 2 of the Optional Protocol to the ICESCR. 60 See, Article 2(1) and 11(1) ICESCR. 61 Coomans and Künnemann (2012). 62 Langford et al. (2013a), p. 8. 63 For a comprehensive analysis, cf. Ssenyonjo (2010). 64 See, Maastricht Principles on Extraterritorial Obligations in the area of Economic, Social and Cultural Rights (2011). www.maastrichtuniversity.hl/web/show/id=596286/langid=42. Accessed 14 March 2019. 65 Salomon and Seiderman (2012). 66 UN Committee on Economic, Social and Cultural Rights, General Comment No. 24 on State Obligations under the International Covenant on Economic, Social and Cultural Rights in the context of business activities, E/C.12/60/R.1, 10 August 2017, para. 33. 58

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ciple 14 establishes that in order to comprehensively assess the likeliness of ESC rights violations and to put preventive or precautionary measures in place, states must conduct impact assessments also during the negotiation of investment agreements.67 Principle 17 synthesizes the international human rights case law and commentaries on the states’ obligation to ensure that trade and investment agreements are in compliance with human rights.68 Recently, the ESC Committee issued its General Comment No. 24 on State obligations under the ICESCR in the context of business activities, which clarifies precisely the role of the ICESCR as a legal constraint that spans the whole international economic decision-making cycle including investment treaty-making and in relation to extraterritorial obligations.69 Similarly, there is no provision in the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW)70 that stipulates a territorial linkage as a condition for applicability. The CEDAW Committee applies literally the same interpretation as the Human Rights Committee by stating that the CEDAW obligations apply ‘within their territory or effective control, even if not situated within the territory.’71 The International Court of Justice (ICJ) similarly interprets the Convention on Elimination of Racial Discrimination (CERD) as applying to situations falling into these two categories: ‘territory or under [a state’s] control or influence’72—although only two provisions explicitly mention jurisdiction73 in addition to the individual complaint mechanism.74 The Convention on the Rights of the Child (CRC) clarifies that rights of the convention apply within a state’s jurisdiction.75 According to the Committee on the CRC, legal responsibility can also apply extraterritorially provided that a reasonable link exists, which would, for example, be the case ‘when a business enterprise has its centre of activity, is registered or domiciled or has its main place of business or substantial business activities in the

Schutter et al. (2012), p. 1117. Ibid., pp. 1122–1124. 69 UN Committee on Economic, Social and Cultural Rights, General Comment No. 24 on State Obligations under the International Covenant on Economic, Social and Cultural Rights in the context of business activities, E/C.12/60/R.1, 10 August 2017, paras 13, 29. 70 Convention on the Elimination of All Forms of Discrimination against Women, Adopted and opened for signature, ratification and accession by General Assembly resolution 34/180 of 18 December 1979, entry into force 3 September 1981. 71 General Recommendation No. 28 on the Core Obligations of States Parties under Article 2 of CEDAW, CEDAW/C/2010/47/GC.2 (2010), para. 12. 72 ICJ, Application of the CERD (Georgia v Russian Federation), Provisional Measures, Order of 15 October 2008, ICJ Reports 2008 353, para. 149(4). 73 Article 3 and 6 CERD. 74 Article 14 CERD. 75 Article 2(1) CRC. 67 68

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State concerned.’76 The Convention against Torture (CAT)77 also does not contain an expressed territorial limitation except for provisions relating to the enactment and enforcement of legislation. According to the CAT Committee, a state is responsible for violations of the convention in all cases in which the state holds ‘de jure or de facto control over a person’.78 Art. 1 of the ECHR expressly limits the scope of right holders to persons ‘under the jurisdiction’ of the Contracting States. The ECtHR’s take on the meaning of Article 1 changed considerably over time and especially after the much criticized Bankovic decision which makes it difficult to infer a consistent and generally applicable methodology.79 In the Bankovic decision, the Court declared a complaint by the survivors and the surviving dependents of the deceased victims of a NATO bombing in Belgrade inadmissible on grounds of lack of jurisdiction. The ECtHR held that the NATO Member States did not have jurisdiction as they were not exercising effective control over that territory at that time in the sense of ‘exercising all or some of the public powers normally to be exercised by that Government’.80 This reasoning seems to exclude any ad hoc state action such as extraterritorial isolated killings81 as well as detention and abduction82 which the Court nevertheless previously found to be admissible. Later, in the Al Skeini judgment83 the Court ostensibly departed from its high threshold for overall effective control and from the applicational limitations to the ‘European territory’ as advocated in Bankovic.84 Subsequently, in Ilascu and Others v. Moldova and Russia, it also abandoned its previous all-or-nothing application of human rights, by admitting that the scope of protection should be adjusted depending on the specific circumstances.85 This development was described by many observers as a shift away from the effective control doctrine.86 However, the conventional territorial thinking seemed to have re-emerged in the Ben El Mahi case, which is a rare example of a genuine

See, for instance, CRC General Comment No. 16 (2013) on State obligations regarding the impact of the business sector on children’s rights, 17 April 2013, CRC/C/GC/16, section V.C. on children’s rights and global operations of business actors. 77 Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment, Adopted and opened for signature, ratification and accession by General Assembly resolution 39/46 of 10 December 1984 entry into force 26 June 1987. 78 CAT, General Comment No 2, CAT/C/GC/2/CRP.1/Rev.4 (2007), para. 16. 79 ECtHR, Bankovic and Others v. Belgium and 16 Other Contracting States, ECHR 2001-XII; For the criticism, see Happold (2003); Lawson (2004); Gondek (2009), pp. 169–179. 80 ECtHR, Bankovic and Others v. Belgium and 16 Other Contracting States, ECHR 2001-XII, para. 71. 81 ECtHR, Issa and Others v. Turkey, no. 31821/96 (16 November 2004). 82 ECtHR, Öcalan v Turkey, ECHR 2005-IV. 83 ECtHR, Al-Skeini v United Kingdom, ECHR 2011, para. 149. 84 ECtHR, Bankovic and Others v. Belgium and 16 Other Contracting States, ECHR 2001-XII, para. 80. 85 ECtHR, Ilascu and Others v. Moldova and Russia, ECHR2004-VII, para. 333. 86 den Heijer and Lawson (2013), p. 178. 76

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internal act with external effects being challenged.87 In this case Mr. Ben El Mahi, residing in Morocco, filed a complaint against Denmark in the context of the caricaturist publications of the Prophet Muhammad in the Danish newspaper Jyllands- Posten. The publications, one of them showing Muhammed with a bomb in his turban, were considered offensive to religious sensibilities and Demark to be in breach of the Convention by refraining from initiating criminal proceedings despite an intense outrage by the Muslim world. The ECtHR did not see any jurisdictional link and denied admissibility without any discussion. Again, a strong emphasis was put on the requirement of effective control.88 However, to conclude from this case, that internal acts with extraterritorial effects are per se excluded under the ECHR does not seem convincing.89 The ECtHR has accepted cases of internal measures with the human rights violation occurring extraterritorial before.90 The dismissal of Ben El Mahi may also be due to the sensitive issues at stake (from a mere political point of view) and a rather weak causality link. The shift away from the effective-control paradigm is however only clearly traceable in cases in which the exertion of power occurred through the use of force which according to the ECtHR suffices to bring the affected individual under the state’s ‘effective control.’91 It has been suggested that this case law can be conceptualised as only requiring any kind of additional relationship to trigger obligations, which in cases of direct ad hoc exertion of power is satisfied by the degree of control, but other relationships as a ground for jurisdiction remain possible.92 Summing up the survey of concepts of application across the different human rights instruments, some common traits become apparent. The applicability of all of the key human rights instruments is triggered either by territoriality or by (effective) control or influence—and in fact, irrespective of whether they contain an expressed provision on jurisdiction or not. Effective control thereby commonly includes control over territory or control over persons or property.93 Furthermore, it is worth noting that effective control scenarios have been treated in the case-law as an exception to human rights jurisdiction linked to territory. In addition, one should be aware that also effective control is first of all understood as a territorial concept (‘effective control of an area’94) and that effective control solely over individual persons was accepted in cases of use of force and direct impact. Nevertheless, one has to take note that many aspects of extraterritorial human rights obligations have yet not been litigated before human rights courts. Therefore, for the definitions of ‘influence’ or ‘reasonable link’ the law is still in the making.

ECtHR, Ben El Mahi v. Denmark, ECHR 2006-XV, On this see, also Bartels (2014), p. 1078. ECtHR, Ben El Mahi v. Denmark, ECHR 2006-XV. 89 This is the conclusion that Bartels draws from this case-law, Bartels (2014), p. 1078. 90 See, e.g. ECtHR, Soering v. UK, no 14038/88 (07 July 1989). 91 den Heijer and Lawson (2013), p. 178. 92 Ibid., p. 180. 93 Ibid., p. 165. 94 ECtHR, Ben El Mahi v. Denmark, ECHR 2006-XV. 87 88

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As indicated above, with regards to ESC rights, there have not been sufficient cases with an extraterritorial dimension.95 The nature of many ESC rights such as the obligation of international cooperation (Article 2(1) ICESCR; Article 56 UN Charter) and the obligation to create an international enabling environment (Principle 29 of the Maastricht Principles)96 seems irreconcilable with ‘effective control’ paradigm. Outside the limited case-law, numerous pronouncements by the UN Committees,97 several academic contributions98 as well as statements by actors of the international human rights community99 have increasingly questioned the territorial/extraterritorial divide and developed theoretical frameworks based on comparative analyses to come to terms with extraterritorial human rights obligations. On this basis, the close connection between trade and investment agreements and potentially negative impact on human rights has been highlighted by UN bodies.100 The latter have stressed in several general comments and observations, which are however non- binding, that states should take the extraterritorial impact for human rights into account during international treaty making101 and in relation to trade and investment treaties in particular.102 As will be most relevant for the focus of this book, it has been argued in the literature that such obligations include the design of investment treaties and may require to ensure that local communities can raise their concerns about the adverse impact of such agreements as well as the establishment of ‘exit Langford et al. (2013a), p. 8. Schutter et al. (2012), pp. 1146–1149. 97 UN Committee on Economic, Social and Cultural Rights, General Comment No. 24 on State Obligations under the International Covenant on Economic, Social and Cultural Rights in the context of business activities, E/C.12/60/R.1, 10 August 2017, paras 30–40. 98 Coomans and Kamminga (2004), Skogly (2006), Salomon et al. (2007), Gibney and Skogly (2010), Milanovic (2011), and Langford et al. (2013b). 99 E.g. the ETO Consortium, a network of over 140 human rights related CSOs and academics, http://www.etoconsortium.org/. 100 The report of the Independent Expert on the promotion of a democratic and equitable international order was recently updated to include the EU’s proposal for a investment court system and lists numerous adverse effects on specific human rights, Alfred-Maurice de Zayas, Report of the Independent Expert on the promotion of a democratic and equitable international order, A/ HRC/30/44, 12 July 2016; UN Committee on Economic, Social and Cultural Rights, General Comment No. 24 on State Obligations under the International Covenant on Economic, Social and Cultural Rights in the context of business activities, E/C.12/60/R.1, 10 August 2017. 101 UN Committee on Economic, Social and Cultural Rights, General Comments No. 12: The Right to Adequate Food (Art. 11 of the Covenant), 1999, paras 19, 36; UN Committee on Economic, Social and Cultural Rights, General Comments No. 14: The Right to the Highest Attainable Standard of Health (Art. 12), 2000, para. 39; UN Committee on Economic, Social and Cultural Rights, General Comments No. 15: The Right to Water (Arts. 11 and 12 of the Covenant), 2003, paras 31, 35; Committee on the Elimination of Discrimination against Women, Concluding Observations on Colombia, CEDAW/C/COL/CO/6, 2 February 2007, para. 29. 102 UN Economic and Social Council, Human rights, trade and investment, E/CN.4/Sub.2/2003/9, 2 July 2003; UN Committee on Economic, Social and Cultural Rights, General Comment No. 24 on State Obligations under the International Covenant on Economic, Social and Cultural Rights in the context of business activities, E/C.12/60/R.1, 10 August 2017. 95 96

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mechanisms’ instead of merely postponing the accommodation of policy space to the ‘back end’ of investment policy making, i.e. arbitration.103 To sum up, international human rights law was from the beginning framed in categories determined by the territorial/extraterritorial divide. This divide dominates the international human rights case-law until now and strategies aiming to transcend this dichotomy require additional justification. However, the increasing body of UN pronouncements and scholarship identifying precise extraterritorial human rights obligations in the fields of trade and investment can hardly be ignored. For Article 21 TEU, this means, as will be discussed in more detail in this section’s conclusion, that there is no convincing reason to exclude from the outset an assessment of human rights in cases in which an area is not under the effective control of the EU and/or a Member State. Such an approach would close the door to current developments in international human rights law and would be at odds with a mandate to promote human rights and to contribute to the development of international law. Further, the ECtHR continuously confirms that the ECHR is to be understood as a ‘living instrument’ that must be interpreted in accordance with ‘present day conditions’ and may evolve according to international trends.104 Article 21 TEU does not require human rights jurisdiction, attribution of responsibility or causality to be applicable. These aspects will need to be determined in the concrete case and not in the abstract. Although there has never been a case decided on human rights violations through an investment agreement,105 the potential for negative impact has been established in the international human rights discourse as demonstrated above. Part II shows the concrete tensions, while Part III shows that governance structures for capturing those negative impacts and for drafting adequate responses are possible and well-founded in the EU constitutional framework.

2.2.2 T he EU Charter of Fundamental Rights: Responsibility Beyond the Territorial Paradigm Another cornerstone of the EU regime on human and fundamental rights protection is the EU Charter of Fundamental Rights. This section builds on the argument developed by Moreno-Lax and Costello, one of not many commentaries on the

Desierto (2015). Lawson (2010), pp. 66–67. 105 There have been very few cases concerned with a direct conflict between the consequences of a BIT and human rights conventions. For an example, see IACtHR, Case of the Sawhoyamaxa Indigenous Community v. Paraguay, Merits, Reparations, and Costs, 29 Mar. 2006, Series C No. 146, para. 140. In this case, the Inter-American Court of Human Rights (IACtHR) was confronted with a direct conflict between the obligations under a BIT and indigenous peoples’ rights. The IACtHR asserted that the American Convention on Human Rights as a quasi-legislative instrument enjoys precedent over the reciprocity-based BITs. 103 104

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extraterritorial application of the EU Charter.106 Moreno-Lax and Costello convincingly argued that the EU Charter abandons some of the limitations of conventional international human rights protection by deploying an autonomous concept of human rights responsibility.107 After rehearsing and broadening Moreno-Lax and Costello’s argument, this section brings in further aspects that substantiate the claim that the fundamental rights protection endorsed by the Charter is a concept that goes beyond the doctrines of the international human rights regime while accommodating the ‘specificities’ of the EU constitutional framework and constituting a continuation of the EU’s mode of global governance. The human rights objective of Art. 3(5) and 21 TEU may be understood as a re-emphasis of the Charter’s external application and as a sign-post for integrating this concept into the external policy making cycle. Against the background of the common traits of international human rights law identified above, this part demonstrates how the EU Charter breaks with the traditional territorial paradigm. This is demonstrated through textual analyses and a brief survey of the case law of the CJEU. This chapter does not analyze fundamental rights as general principles as a separate category since the Charter is likely to be the preferred reference when adjudicating substantive rights.108 Further, this chapter and this book focus on human rights and fundamental rights of those outside the EU.109 2.2.2.1 Scope of Article 51(1) of the EU Charter First of all, there is no jurisdictional clause enshrined in the Charter which could signal any territorial linkage as the basic premise for applicability. Instead, Article 51(1) of the Charter links the application solely to the addressees of the obligations, i.e. all EU organs and the Member States “when they are implementing Union law”. Furthermore, there is no textual indication that a distinction will have to be made between internal and external competences. For EU organs (including EU institutions, bodies, offices and agencies) this provision essentially means that they are always bound to the Charter since they are themselves a creation of EU Law. The precise scope of the requirement of “implementing Union Law” only affects the Member States. This part of the application question turned into one of the most sensitive—at least from a Member States’ perspective—and most rigorously debated issues of the Charter.110 The Court finally Moreno-Lax and Costello (2014). Ibid. 108 Lenaerts and Gutiérrez-Fons (2011), pp. 181–185. 109 Less problematic is the question of applicability of the Charter to investment treaty making with regards to the internal situation, see e.g. AG Bot on the application of Art. 20 and 21(2) of the Charter when deciding upon the validity of CETA, Opinion 1/17, Opinion of Advocate General Bot (CETA), ECLI:EU:C:2019:72, 29 January 2019, para. 186. 110 For a detailed discussion on the debate, see Lazzerini (2013), p. 193 et. seq. 106 107

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made it clear that it upholds the categorization it developed in context of fundamental rights as general principles.111 In essence, the CJEU sees the Charter and its jurisdiction to be applicable not only when Member States primarily and directly give effect to EU law. Instead, the national measure in question must be linked only ‘somehow’ to a subject matter governed by EU Law, aside from the Charter (e.g. a partly connection to the interests of the EU sufficed in the seminal Fransson case). Nevertheless, the precise requirements for such a link will still need to be outlined by subsequent case-law.112 Furthermore, it is still unclear how the ‘scope of Union Law’ will be defined in the context of mixed agreements and their implementation. In contrast to the lively debate about the application of the Charter to Member State action, the academic inquiry into extraterritorial application is scarce.113 The analysis of Moreno-Lax and Costello advocates understanding the application of the EU Charter as adopting an autonomous paradigm, and aptly asserted that the jurisdictional limitations of other human rights instruments and in particular of the ECHR are not a constraint because of Art. 52(3) of the Charter which clearly allows for more extensive protection.114 The rights of the ECHR and the appertaining case- law are only determinative for the interpretation of the Charter provisions as far as they correspond to those of the ECHR in order to not fall behind the substantive scope of protection guaranteed by the ECHR.115 The Explanation to Article 52 as well as the CJEU put a strong emphasis on the autonomy of the EU legal order which has to be protected and which allows for legitimate divergences from the ECHR (provided that the level of protection is not undermined).116 It follows that whereas the ECtHR jurisprudence informs the substantive scope of certain rights, the applicability of the Charter remains unaffected. For the latter, the Union applies its own concept that constitutes a legitimate divergence since the protection is more extensive. Furthermore, some limitations of application are instead incorporated in the respective provision itself. For instance, several rights only apply for EU citizens and EU residents.117 Other provisions restrict the ratione materiae from the outset.118 The Charter thus seems to apply, what in the human rights discourse was termed, a ‘gradual application’ by providing some flexibilities and nuances of appli Case C-617/10, Fransson, ECLI:EU:C:2013:105, Judgment of 26 February 2013, para. 19. Ward (2014), p. 1433 et. seq. 113 Explicitly dealing with the extraterritorial application of the Charter, Wouters (2001); MorenoLax and Costello (2014). 114 Cf. Moreno-Lax and Costello (2014), p. 1660. 115 Cf. explanation to Article 52 that also lists the Charter rights that have the same meaning as ECHR rights and explains what extent until that point in time. 116 Peers and Prechal (2014), p. 1496 et seq. 117 For instance, Article 42, 43, 44 EU Charter apply to EU Citizens and residents, Article 45 and 46 EU Charter only apply to EU Citizens, Article 47–50 apply to everyone. 118 For instance, some rights, like Art. 35 (health care), are subject to the conditions established by national laws and practices. Concerning justiciability, there are differences to be made between rights and principles, cf. Art 52(5) Charter. 111 112

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cation within the scope of protection of each right.119 The fact, that there is a distinction made between Union citizen rights, EU residents and rights that apply to everyone supports the assumption that no limitations on applicability on a general level was intended. On the other hand, distinctions between rights that apply for nationals and for everyone are also known in nation state constitutions which are nevertheless conventionally understood as being primarily linked to territory.120 However, for nation states territory is a constituent element of their existence and the genuine source of power.121 Territory is key for establishing a state’s jurisdiction in its meaning under public international law. For the EU as a supranational organization this is not necessarily the case. Moreno-Lax and Costello convincingly demonstrate that EU Law in general rarely deploys territorial concepts.122 In the same vein, also the reference to the territories of the Member States in Article 52 TEU and Article 355 TFEU concerning special arrangements for overseas countries and territories could be understood as specifying the states that are bound by the Treaties rather than limiting the geographical scope of the effect that EU law.123 Instead, EU primary law is structured along the lines of competence.124 This language of competence likewise permeates the Charter and the EU’s human rights responsibility as a whole. At this point it also makes sense to point to the particular approach the EU deploys in relation to EU legislation and its extraterritorial reach.125 Although extraterritorial unilateral EU legislation beyond nationality-based jurisdiction is rather rare, there are a number of regulations that have been formulated such as to impact on conduct happening abroad. This has been demonstrated by Joanne Scott’s identification of the ‘territorial extension’ of EU law.126 Scott shows that EU legislation in the policy fields of climate change, environment, maritime transport, air transport and financial services regulation which are concerned with ‘transboundary issues’ In contrast, to the ‘all or nothing’ approach, see Sect. 2.2.1.4. See, for instance, the Basic Rights in the German Constitution that only apply to German citizens and by interpretation to EU citizens, Art. 8, Art. 9, Art. 11, Art. 12 of the Basic Law (so called “Deutschengrundrechte”). 121 See, for example, according to the theory of states as developed by Jellinek (1914), pp. 394–407. 122 Moreno-Lax and Costello (2014), p. 1663 et seq.; Moreno-Lax and Costello also argue that EU competence is sometimes construed very broadly (particular in the fields of commercial sanctions and climate change) encroaching upon the restrictions of jurisdiction under public international law based on the EU law principle of effectiveness. This in turn means that also fundamental rights applicability might expand over the limits of jurisdiction. However, this argumentation is not necessary for justifying human rights applicability. As discussed above, human rights application according to the conventional human rights doctrine is not limited by the boundaries of jurisdiction under international law. Second, the observations and analysis of Joanne Scott that are discussed below rightly distinguish the legislation in question from illegitimate use of extraterritorial prescriptive jurisdiction. 123 Ibid., p. 1664; See, also Ganesh (2016), p. 502. 124 Moreno-Lax and Costello (2014). 125 See, also Bradford (2012). 126 Scott (2014). 119 120

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the EU is in effect regulating outside the EU and shapes the organizational structures and content of standards of non-EU firms, third states and on global level.127 Scott distinguishes this concept of territorial extension from extraterritorial regulation in breach of public international law principles or at least controversial according to such, because the trigger for application of these EU regulations remains a territorial connection, which mainly is the access to the EU market.128 Further, all of her examples exhibit an international orientation, meaning that the legislation is based on international standards when possible and directed towards facilitating bilateral and multilateral approaches or open towards ‘equivalent’ legislation in third states rather than imposing fixed EU standards.129 Scott shows that the legitimacy of such extraterritorial impact has been endorsed by the Commission130 and upheld by the CJEU in ATAA.131 Hence, the EU supports a concept of prescriptive jurisdiction that allows EU law under certain circumstances to have impact abroad. The relevance of the CFR for such extraterritorial aspects should therefore not be too hastily dismissed. The application clause of the CFR allows for interpretations that adequately cover the actual reach of EU regulatory power which can take diverse forms and subtle methods. These observations also have consequences for the legal standing of non-privileged applicants, which is discussed in Sect. 2.5. This is not to say that extraterritoriality will not matter for the scope of EU’s fundamental rights protection. Instead, extraterritoriality might lead to adjustment of the scope of the right in question. Nevertheless, according to the CJEU case law on protecting the ‘essence’ of fundamental rights,132 such adjustments also have certain limits. Inviolable and non-derogable rights set further limitations to fundamental rights restrictions, leaving aside at this point which Charter rights could fall under these categories.133 Another novel aspect is the focus on ‘promotion’. Article 51(1) CFR explicitly requires the EU institution and the Member States to ‘respect the rights, observe the

While the regulation usually applies to an individual transaction, the impact of such legislation might be broader, because the scope of the legal and factual circumstances that the regulator has to take into account may extend to the firm, third state legislation or international developments, which Scott terms the three different spheres of intervention. Ibid., p. 106. 128 Ibid., p. 90. 129 However, as she points out, the EU is not always just implementing international law but often enforcing international standards that are not yet binding or not yet globally excepted or while assuming the role of the enforcer even though other mechanisms might have been foreseen in these internationally agreed standards. See, ibid., pp. 112–113. 130 Scott discusses in detail the position the EU Commission has taken towards extraterritorial regulation by the US to show that the contested aspects do not stand in contrast with the EU approach, see ibid., pp. 118–123. 131 Ibid., p. 115; with reference to Case C-366/10, Air Transport Association of America (ATAA), ECLI:EU:C:2011:864, Judgment of 21 December 2011, paras 128, 129. 132 See, for instance, the judgment referred to in the Explanation to Article 52, Case C-292/97, Karlsson, ECLI:EU:C:2000:202, Judgment of 13 April 2000, para. 45. 133 For discussion of the latter, see Peers and Prechal (2014), p. 1469 et. seq. 127

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principles and promote the application thereof’.134 The scope of obligations, if any, flowing from that mandate to promote is not yet defined by case law and there remains ample room for scholarly analysis. Section 2.4.2.2 proposes a reading of the obligation to promote in conjunction with the obligation to promote stemming from Article 21 TEU. At this stage, the analysis is focused on the applicability of the entire scope of the Charter including the duty to promote to external policy making. In that regard, another argument is put forward by Jan Wouters, who points out that Art. 2(2) on the prohibition of the death penalty supports understanding the Charter as a base for outwards directed promotion of the rights enshrined therein since all of the Member States have abolished the death penalty and committed themselves to do so in international conventions.135 Conclusively, the Charter embraces a concept of human rights responsibility that is based on competence not territory, includes a duty to promotion and encompasses all internal as well as external policy fields while stressing the need for consistency between policy fields and competences. 2.2.2.2 Case Law on Extraterritorial Application of the EU Charter A few cases serve to shed some light on the territorial dimension or rather on the absence of any territorial thinking by the Courts when applying the EU Charter. In the Pringle case, in which the validity of the establishment of the European Stability Mechanism (ESM) by the Member States was challenged, the Court found the Charter to be inapplicable because the Treaties do not confer any competence to establish such a mechanism which makes the Member States’ action fall outside of the scope of EU law.136 This reasoning further supports that the crux of the matter (in casu in the reverse) is not whether a situation is located inside EU territory but only whether it is covered by the competence of the EU. It is also worth mentioning the restrictive measures line of cases in which the Court repeatedly stressed that the EU Charter applies to all policy fields including CFSP.137 They are discussed in more detail in Sect. 2.5. The Mugraby case138 is an interesting example on one hand of a possible substantial link between human rights clauses in an EU agreement and the EU Charter and Emphasis by the author. Wouters (2001), p. 5. 136 Case C-370/12, Pringle, ECLI:EU:C:2012:756, Judgment of 27 November 2012, para. 105; AG Kokott assumes that the EU institutions even when acting outside the framework of EU law are bound by the Charter, Case C-370/12, Opinion of Advocate General Kokott, Pringle, ECLI:EU:C:2012:675, 26 October 2012, para. 176. 137 E.g. Case C-130/10, Parliament v Council (Al Qaeda), ECLI:EU:C:2012:472, Judgment of 19 July 2012, para. 83. 138 T-292/09, Mugraby v Council, ECLI:EU:T:2011:418, Judgment of 6 September 2011; Case C-581/11 P, Mugraby v Council, ECLI:EU:C:2012:466, Judgment of 12 July 2012. 134 135

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on the other the general acceptance of the EU Charter’s applicability outside the EU’s territory. In Mugraby, a Lebanese applicant claimed the failure of the EU to adopt appropriate measures, specifically to suspend aid programs, under a human rights clause in the EU-Lebanon association agreement following Lebanon’s fundamental rights violations. Although the claim failed on many grounds, neither the General Court nor the ECJ discussed the fact that the alleged fundamental rights violations occurred extraterritorially. The ECJ did not generally rule out that an essential element clause can be the base for a failure to act claim by stating that ‘that it follows from Article 17(1) TEU that the Commission, as guardian of the TEU and TFEU Treaties and of the agreements concluded under them, must ensure the correct implementation by a third State of the obligations which it has assumed under an agreement concluded with the European Union, using the means provided for by that agreement or by the decisions taken pursuant thereto’.139 In the agreement at stake, however, the wording in the agreements as well as the underlying regulation used clearly indicated a non-obligatory nature. Further the Court, did not generally rule out that non-EU national can in principle invoke the principle of effective judicial protection in the context of an extraterritorial human rights violation by stressing that ‘this is a general principle of European Union law to which expression is now given by Article 47 of the Charter of Fundamental Rights of the European Union.’140 Further, one may point to the Zaoui case, in which the applicant claimed compensation for the loss of his family killed by the Hamas. The responsibility of the EU was meant to lie in its funding of education in the Palestine territory, which is allegedly inciting hatred and racism. The case failed because causality could not be demonstrated.141 However, as Bartels rightly observes, the extraterritoriality was not an issue.142 The recent Polisario case, in which the General Court annulled the Council’s decision to conclude a trade agreement with Morocco that would have impacted on the territory and thus the well-being of the inhabitants of Western Sahara controlled by Morocco, is worth mentioning in many regards.143 This section focuses on the application of the EU Charter to the people living in the Sahrawian territory which the General Court confirms. Moreover, the General Court lists a full catalogue of Charter rights which could potentially be infringed.144 Of particular interest to this Case C-581/11 P, Mugraby v Council, ECLI:EU:C:2012:466, Judgment of 12 July 2012, para. 68. 140 Ibid., para. 81. 141 Case C-288/03 P, Zaoui, ECLI:EU:C:2004:633, Judgment of 14 October 2004, paras 3, 13–14. 142 Bartels (2014), p. 1076. 143 T-512/12, Front Polisario v Council, ECLI:EU:T:2015:953, Judgment of 10 December 2015; C-104/16 P, Front Polisario v Council, ECLI:EU:C:2016:973, Judgment of 21 December 2016. 144 ‘[…] the Council must examine, carefully and impartially, all the relevant facts in order to ensure that the production of goods for export is not conducted to the detriment of the population of the territory concerned, or entails infringements of fundamental rights, including, in particular, the rights to human dignity, to life and to the integrity of the person (Articles 1 to 3 of the Charter of Fundamental Rights), the prohibition of slavery and forced labour (Article 5 of the Charter of 139

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section’s focus is the linkage the General Court drew between Article 21 TEU and the Charter. The General Court repeated the principle that the institutions enjoy a wide margin of discretion within the field of external economic relations and with regards to Article 21 TEU and that the Court is limited to review whether there has been a manifest error of exercising such discretion.145 Subsequently, the General Court then found such a manifest error in that the Council failed to conduct a proper assessment regarding the possibility of fundamental rights violations.146 Conclusively, the General Court considered it to be a violation of Article 21 TEU that the Charter rights at stake were not adequately taken into account. The General Court thus explicitly drew a link between the substantive content of Article 21 TEU and the Charter. In more abstract terms, but while considering an internal situation, also Advocate General (AG) Bot in his avis on the compatibility of CETA confirms this linkages when stating that “the European Union must, when exercising the competences conferred on it by the EU and FEU Treaties, including those relating to the common commercial policy, respect fundamental rights, of which the principle of equal treatment forms part.”147 The AG Wathelet in his opinion delivered on 13 September 2016 agreed with the duty to conduct an impact assessment prior to concluding the trade agreement (in the alternative since he denies legal standing to Polisario). Citing the ATAA case and others, the AG recalled that human rights compliance and the strict observance of international law is a requirement for all external action and refuted the Council’s objection that human rights in a third country are only a political matter.148 However, such an assessment should only cover jus cogens and erga omnes norms.149 Siding with the Commission and the Council, he criticised the General Court for misinterpreting Article 51 CFR, which he understood as prescribing an in principle territorial application of the Charter. Applying by analogy and without further explanation the case law of the ECtHR, the AG concluded that extraterritorial application is only relevant when an activity is governed by EU law or carried out under the effective control of the EU and/or a Member State.150 As discussed above, this conclusion would make the human rights objective redundant.

Fundamental Rights), the freedom to choose an occupation and right to engage in work (Article 15 of the Charter of Fundamental Rights), the freedom to conduct a business (Article 16 of the Charter of Fundamental Rights), the right to property (Article 17 of the Charter of Fundamental Rights), the right to fair and just working conditions and the prohibition of child labour and protection of young people at work (Articles 31 and 32 of the Charter of Fundamental Rights).’ T-512/12, Front Polisario v Council, ECLI:EU:T:2015:953, Judgment of 10 December 2015, para. 228. 145 Ibid., paras 164, 166. 146 Ibid., paras 124–125, 132. 147 Opinion 1/17, Opinion of Advocate General Bot (CETA), ECLI:EU:C:2019:72, 29 January 2019, para. 195. 148 Case C-104/16 P, Opinion of Advocate General Wathelet, Front Polisario v Council, ECLI:EU:C:2016:677, 13 September 2016, para. 256. 149 Ibid., paras 259, 276. 150 Ibid., paras 270–272.

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The ECJ—in its decision on the appeal—denies the standing of the Front Polisario, but leaves the door open for a role of EU fundamental rights in trade policies. For the ECJ, the determination of whether Polisario fulfils the direct and individual concern criteria of Article 263 (4) TFEU hinges on the scope of application of the Liberalization Agreement and the Association Agreement. According to the ECJ’s application of the principle of the relative effect of treaties (pacta tertiis nec nocent nec prosunt) of Article 34 of the Vienna Convention of the Law of the Treaties (VCLT),151 the Association Agreement cannot be applied to a territory distinct from Morocco without the formers consent. Such an interpretation would be contrary to the right to self-determination, which is an erga omnes rule of international law.152 For reading an intention of the parties to the agreement to breach one of the most fundamental rules of international law into the application norm, a high threshold is warranted. Subsequent practice or tacit agreement is not enough. This case at the same time uncovers a rather vague understanding amongst the EU institutions as to their human rights and fundamental rights obligations. A methodology for implementing human and fundamental rights compliance in trade policies and a clear framework of such for judicial review is required. The General Court presented a valuable proposal for a normative framework when applying the Charter. As the ECJ did not get as far as ruling on the question of a required fundamental rights assessment, the door for the proposals of the General Court remains open.153 This brief overview of the few cases in which fundamental rights of individuals outside EU’s territory were at stake illustrates that the Courts rather focus on the scope of Union law as the only requirement for fundamental rights applicability and do not exclude the extraterritorial application of the Charter per se. The need for an additional justification and the practical shift of burden of proof that the ECtHR applies seems not to have spilled over.154 Summing up the textual as well as the case law analysis, the EU concept of fundamental rights responsibility as argued by Violeta Moreno-Lax and Cathryn Costello transcends traditional territorial limitations by following the constitutional structures of EU Law organized by competences.

United Nations, Vienna Convention on the Law of Treaties, 23 May 1969, United Nations, Treaty Series, vol. 1155, p. 331. 152 Case C-104/16 P, Opinion of Advocate General Wathelet, Front Polisario v Council, ECLI:EU:C:2016:677, 13 September 2016, para. 92. 153 C-104/16 P, Front Polisario v Council, ECLI:EU:C:2016:973, Judgment of 21 December 2016, para. 47. 154 Also Angela Ward argues that the case law on extraterritorial application of international human rights law has so far been irrelevant for the application of the Charter, see Ward (2014), para. 51.23. 151

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2.2.3 Conclusion First of all, all of the human rights sources elaborated above may inform the substantive content of Article 21 TEU. In this respect, Article 21 TEU should be understood as the application and the operationalizing norm that instructs the EU how human rights norms should be fed into the policy making cycle. This requires, at a minimum, the assessment of those human rights that are likely to be applicable and that the EU is obliged to comply with. However, the duty to promote as well as the commitment to contribute to the development of international law, allow the EU to pursue progressive understandings of international human rights law and to go beyond what is strictly required. In fact, it would appear to be contrary to such mandates to apply the most restrictive reading of human rights obligations. The Charter as it is argued above can be understood as being less restricted by the traditional territorial dichotomy in any case. The principle of autonomy that is upheld within the Charter allows for giving more generous interpretation to the scope of Charter rights including those that are based on the ECHR that certainly applies to the legislator and may also influence the Court.155 Further, the Charter could be especially relevant for the investment policy making content, because it also includes a mandate to promote and it comprises civil and political rights as well as economic, social and cultural rights within one instrument. Further, it is important to note that the application of Article 21 TEU and its legal consequences (such as the obligation to assess) do not depend on the attribution of responsibility or proven causation. The theoretical framework of the duties that follow from Article 21 TEU for the policy making and implementation stage is elaborated in Sect. 2.4, while the concrete operationalization is demonstrated in Part III. At this stage, one should note that the substantive human rights norms are complemented at the policy making and implementation level by the specifics of Article 21 TEU such as the commitments to universalism and indivisibility and the explicit mandate to promote on the international scene. This does not mean that Article 21 TEU will necessarily broaden the requirements for accountability for individual human rights violations. But it gives clear indications for the relevance human rights should be granted in the design and the enforcement of an international investment regime upheld by the EU. Failures on that level may be challenged in Court.

For a more comprehensive discussion on this, see Peers and Prechal (2014), paras 52.142–52.149.

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2.3 Other Provisions Governing EU Investment Policy Next to the human rights principle and objective, other substantive and structural principles apply to the field of investment policy. This section outlines those as a basis for discussing the relation between the human rights principle and objective and those other principles that govern investment regulation, which allows assessing questions of hierarchy.

2.3.1 Specific Objective of Investment Liberalization The most relevant objective for investment policy is naturally the objective of trade and investment liberalization. Article 206 TFEU explicitly tasks the EU with the progressive abolition of restrictions on international trade and on foreign direct investment. Further, the general external principles and objectives include progressive abolition of restrictions on international trade (Art. 21 (2)(e) TEU) as well as free and fair trade (Art. 3(5) TEU). Although the latter two do not explicitly mention foreign direct investment, they are relevant for the CCP in general as the EU’s instrument for achieving these objectives. It has been argued that in comparison to its predecessor Article 131 TEC, the wording of the new CCP indicates a shift from an aspirational to an obligatory nature (“Member States aim to contribute” to “the Union shall contribute”).156 This raises the question of what this would mean for the relation between the objective of liberalization and the human rights objective and in particular whether this would entail a prioritization of investment liberalization over human rights. The scholars that support the obligatory reading differ as to the degree of such an obligation to liberalize and its consequences. Whereas Markus Krajewski argues that short term trade restrictions necessary in light of other EU objectives would still be allowed and are also not necessarily comprising on a long-term and gradual liberalization of trade,157 Angelos Dimopoulos infers from the mandatory objective that any measure that would affect the current level of liberalization is prohibited.158 This also includes, so he argues, measures in the pursuance of any other general objective such as human rights.159 Yet, at the same time, he admits that an outright exclusion of their relevance would question the meaning of the reference to the general objective in the CCP context. He therefore suggests a strict test for measures in the pursuance of other general objectives that should follow the same logic as the test for legitimate restrictions of internal market freedoms.160 The explicit reference Cremona (2006), p. 29; Dimopoulos (2010), p. 160; Krajewski (2012), p. 295. Krajewski (2012), p. 295. 158 Dimopoulos (2010), p. 161. 159 Ibid., p. 167. 160 Ibid., p. 167. 156 157

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to fair trade is interpreted as the only intended structural constraint on liberalization—which is only legitimate in case a strong link between the restriction and the sustainable development objective can be demonstrated.161 In effect, Dimopoulos therefore argues that the new stronger liberalization mandate would overturn the previous case law on legitimate trade restrictions.162 Krajewski, although acknowledging the obligatory nature of the liberalization objective, insists that this does not entail any hierarchy between trade liberalization and the general objectives.163 Previously, the Court explicitly made clear that the CCP did not entail an obligation to liberalize or a prohibition of constraining trade, when this is necessary in light of the Union’s interest.164 In Chinese toys, the Court based this conclusion explicitly on the reference to the ‘common interest’ in then Article 131 TEC.165 The Court seemed to apply a wide margin of discretion as to when such restrictions are necessary. In terms of competence delineation, the Court accepted the pursuance of other objectives under CCP through measures that were not merely directed at liberalizing trade, but rather regulatory agreements166 as well as trade restrictions.167 The previous scope of CCP, although also including a liberalization mandate, was interpreted as covering the regulation of international trade relations with sustainable development playing a major part.168 In Natural Rubber, the Court explicitly stated that while ‘the drafters may only have had liberalization of trade in mind’ that should not be a barrier to develop an EU trade policy that is essentially directed regulating the world market rather than being limited to trade liberalization.169 The post-Lisbon case law follows this path. According to the case-law based on Article 207 TEU, ‘an EU act falls within [CCP] if it relates specifically to […] trade in that it is essentially intended to promote, facilitate or govern such trade and has direct and immediate effects on it.’170 However, ‘the mere fact that an act of the European Union, such as an agreement concluded by it, is liable to have implications for international trade is not enough’.171 The ‘direct link to trade’ test for Ibid., p. 167. Ibid., pp. 157–161. 163 Krajewski (2012), p. 294. 164 Case 112/80, Firma Anton Dürbeck v Hauptzollamt Frankfurt am Main-Flughafen, ECLI:EU:C:1981:94, Judgment of 5 May 1981, para. 44; Case C-150/94, Chinese toys, ECLI:EU:C:1998:547, Judgment of 19 November 1998, para. 67. 165 Case C-150/94, Chinese toys, ECLI:EU:C:1998:547, Judgment of 19 November 1998, para. 67. 166 Opinion 1/78, Natural Rubber, ECLI:EU:C:1979:224, 4 October 1979, para. 45. 167 Case C-70/94, Werner, ECLI:EU:C:1995:328, Judgment of 17 October 1995, para. 12; Case C-124/95, Centro-Com, ECLI:EU:C:1997:8, Judgment of 14 January 1997, para. 26. 168 Case 45/86, Tariff preferences, ECLI:EU:C:1987:163, Judgment of 26 March 1987, para. 18. 169 Opinion 1/78, Natural Rubber, ECLI:EU:C:1979:224, 4 October 1979, para. 44. 170 C-414/11, Daiichi Sankyo, EU:C:2013:520, Judgment of 18 July 2013, para. 51; C-137/12, Commission v Council, EU:C:2013:675, Judgment of 22 October 2013, para. 57; Opinion 3/15, Marrakesh Treaty on access to published works, 14 February 2017, para. 61; Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 36. 171 C-414/11, Daiichi Sankyo, EU:C:2013:520, Judgment of 18 July 2013, para. 51. 161 162

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d etermining whether an agreement is covered by CCP was confirmed by the longawaited Opinion 2/15 on the FTA with Singapore.172 The Court had to decide on multiple areas of international economic regulation (such as public procurement, competition policy, investment protection, the mutual recognition of professional qualifications and intellectual property rights) which are now covered by the new generation of trade and investment agreement. However, rather than developing a universal standard of analysis, the Court decided on a case-to-case basis what would constitutes a specific link to trade, while often merely repeating the intentions expressed in the texts.173 This indeterminacy leaves the Court ample room for discretion.174 From the individual areas of regulation and provisions the Court assessed, it is difficult to precisely pinpoint the role that objective of liberalization had played. On one hand, provisions that were not directly aimed at dismantling trade barriers but rather part of economic regulation (such as the regulation of public procurement, investment protection, regulation of intellectual property rights) more broadly were said to fall under CCP and thus to have that direct link. These classifications could support reading ‘govern trade’ as a separate independent category that allows for trade regulation that is not necessarily directed at liberalization. On the other hand, the criteria the ECJ mentions at times to support the determination as a CCP-measure are clearly closely linked to liberalization in the first place. For instance, measures fall under CCP when they will render trade in goods ‘more fluid and less onerous’,175 are ‘essentially intended to open up […] markets’,176 or— in case of behind the border regulation—are establishing a legal framework that creates certainty for foreign investors is intended to promote, facilitate or govern trade and therefore has a direct link to trade [emphasis added].177 Similarly, AG Sharpston argued, for instance in the context of competition, that obligations have a direct link to trade when they are ‘liable to undermine the benefits of trade liberalisation’ by, for instance, ‘rendering rules on market access nugatory’.178 One may criticize the Court, for being content with what the treaty maker intended (as indicated in the text of the provision or at times second guessed) instead of requiring any evidence for the measures in question actually having such facilitative effects. However, for the question of concern here, one should be attentive as to whether the mentioning of these criteria means that the Court understands the liberalization Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 36. For a detailed discussion, see Chap. 3 on the investment competence. 173 Ibid., paras 37–38. 174 For a critical analysis of the indeterminacy of this test in the case law prior to Opinion 2/15, see Kleimann (2017). 175 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 48. 176 Ibid., para. 52. 177 Ibid., paras 94–95. 178 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 460. 172

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objective as inherent to trade. That would mean that the Court assumes implicitly that a direct link to trade means implications on free trade. In the same vein, it also seems that, protection measures are only justified—even though the threshold for finding such effects is very low—when contributing to the long-term goals of trade liberalization. However, the Court clarified the role of the foreign policy objectives and principles (also for the first time).179 The Court ascertained that the trade and investment policy maker is under an obligation to integrate the general foreign policy objectives and principles according to Article 21 TEU, Article 205 TFEU and Article 207 (1) TFEU. These general objectives are ‘new aspects of contemporary international trade’180 and particularly sustainable development (Article 21(2)(f) TFEU) is ‘henceforth form[ing] an integral part of the CCP’.181 Furthermore, the general horizontal clauses requiring adequate social protection and environmental protection (Article 9 and 11 TFEU) must also be taken into account within trade and investment policy making. Whether sustainable development enjoys a special place amongst the general objectives in relation to trade or whether the same conclusion can be transposed to the human rights objective is discussed below.182 At this stage, it suffices to note, that the Court confirms an understanding of CCP as being informed and constraint by other objectives that play a prominent role in the EU legal order. Further, the Court explicitly holds that ‘the liberalization of trade must be in compliance with the general objectives’.183 The enhanced liberalization mandate did not seem to have prompted the Court to adopt stricter definitions of the CCP competence. It is therefore hard to imagine that the liberalization will be influential when determining the compatibility of a measure and especially that it will lead to measures in the pursuance of the general objectives upon the restriction of trade requiring increased justification. However, there is more to say about the consequences for the competence delineation with regards to the human rights objective which is discussed in Sect. 2.4.1. The consequences for the precise scope of the investment policy are discussed in Chap. 3. This section remains focused on the question whether an enhanced liberalisation mandate entails a prioritization of liberalization over the human rights objective. In light of the post-Lisbon case law that applied a broad approach to the CCP competence covering restrictive and regulatory trade measures and more importantly the general objectives as an integral part of CCP, the shift promoted by Dimopoulos that would require any trade restriction based on human rights to be especially justified would be inconsistent with current case-law. See, Larik J (2017) Trade and Sustainable Development: Opinion 2/15 and the EU’s Foreign Policy Objectives. In: ACELG. https://acelg.blogactiv.eu/2017/06/08/trade-and-sustainable-development-opinion-215-and-the-eus-foreign-policy-objectives/. Accessed 14 March 2019. 180 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 141. 181 Ibid., paras 146–147. 182 See Sect. 2.3.3. 183 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 163. 179

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It would also be inconsistent with the taxonomy of the Treaties. First of all, it is not convincing to attach a stronger meaning to the shift from ‘aim to contribute’ to ‘shall contribute’ in relation to liberalization, while ignoring the other profound changes in the Treaties’ texts. Even if the direction of CCP is intended to be steered in a stronger way towards liberalization this does not entail an a priori prioritization of liberalization over the human rights objective. On the contrary, a comprehensive analysis of the Treaty text reveals that the Treaties envision constraint liberalization to begin with. Art. 21 (2)(e) TEU as well as Art. 206 TFEU speak of ‘progressive abolition of restrictions on international trade’. Art. 206 TFEU also adds the ‘the harmonious development of world trade’. These references describe a gradual liberalization that apparently is conditioned by something else that might legitimately curb the process. Further, Art. 21(2)(e) TEU describes gradual liberalization as one means to achieve the aim of integrating of all countries into the world economy. Dimopoulos states that the objective of liberalization of trade in this context rather has to be understood as a means for achieving economic development.184 Furthermore, especially in the reference to free and fair trade in Article 3(5) TEU, the constraints for trade policy and the relevance of other considerations than elimination of trade barriers becomes most visible. However, whether this includes human rights consideration depends on the concept of fair trade that one reads into this provision.185 On one hand, fair trade could refer to the compliance with WTO rules and hence mainly the absence of quotas and non-discriminatory regulatory standards. On the other hand, it could stand for equitable and non-exploitative trade and implying trade regulation that structurally ensures an equal distribution of the gains of global trade. It becomes already obvious that in the first reading fair would in essence constitute a repetition of free. Further, Marise Cremona and Dimopoulos have indicated in the context of this discussion that the Commission’s understanding of fair trade points to the second reading.186 In a communication on fair trade the Commission defines fair trade as an example of sustainable economic and social development through trading relationships.187 According to the Commission, “[t]he objective of fair trade is to ensure that producers receive a price which reflects an adequate return on their input of skill, labour and resources, and a share of the total profit commensurate with their input.”188 At a global level, fair trade aims at reducing the historically entrenched disparities between industrialized and developing countries.189 More recently in 2009, this equity-based understanding was confirmed

Dimopoulos (2010), p. 163. Ibid., p. 163; For a detailed discussion on the concept of fair trade under EU law, see Cremona and Durán (2012), p. 151. 186 Dimopoulos (2010), p. 163; Cremona and Durán (2012). 187 European Commission (1999) Commission Communication on Fair Trade, COM(1999) 619 final, p. 4. 188 Ibid., p. 4. 189 Ibid., p. 5. 184 185

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by the Commission.190 However, it is noteworthy that the Commission understands the concept of free trade as mainly operating through voluntary and private-based schemes that respond to the demand of European consumers. Moreover, fair trade and liberalization of trade are perceived as going hand in hand and not as potentially conflicting objectives. The same is true for Article 21(2)(e) TEU which only seems to anticipate synergies between liberalization of trade and poverty eradication. The Court in Opinion 2/15 understands the EU’s mandate to contribute to free and fair trade as referring to sustainable development.191 In any case, the functional relationship of liberalization and social and economic development described in Article 21(2)(e) and 3(5) exhibits a concept of trade that is in itself embedded in social considerations. Following a more progressive interpretation, Article 206 TFEU could be read as speaking of liberalization of fair trade. Even when following a restrictive reading, the clear linkage to social concerns expressed in the general objectives prohibits in any case an understanding of liberalization of trade that only exceptionally and under a strict burden of justification pays attention to social concerns. Liberalization of trade, social concerns and human rights are on par and careful balancing will be required instead. Article 206 and 207 TFEU include further constraints. Art. 206 takes over the caveat of the common interest from its predecessors on which the CJEU inferred that trade restrictions in the interests of the EU are legitimate and warranted.192 The Lisbon reforms add that the CCP ‘shall be conducted in the context of the principles and objectives of the Union’s external action’ (Art.207 TFEU). Compare to the reference ‘in the common interest’, the new supplement clearly entails stronger language—arguably of mandatory quality. In addition, it is now clear what these interests are. Further, Article 206 TFEU added that the EU ‘shall contribute to’ liberalization (emphasis added), which rather points to a multilateral process in which the EU takes part, which already implies that compromises and conditions will apply. Summing up, even if one agrees with the stronger mandate of liberalization, it became clear that this enhancement of liberalization does not anticipate a prioritization over the human rights objective which likewise gained on relevance. The relation will have to be regulated in case of conflict by careful balancing that is informed by the concrete circumstances. How this could be done is demonstrated in Part III of this book. Arguably, the precise balancing will be subject to the discretion for the policy maker. Nevertheless, as it is argued below, the general objectives require the policy makers to develop and use transparent and foreseeable methods for conducting this balancing exercise. It is also noteworthy that it is this discretion that differentiates the liberalization objective from the internal market freedom and excludes applying the same test.193 European Commission (2009) Contributing to Sustainable Development: The role of Fair Trade and nongovernmental trade-related sustainability assurance schemes, COM(2009) 215 final. 191 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 146. 192 Case C-150/94, Chinese toys, ECLI:EU:C:1998:547, Judgment of 19 November 1998, para. 67. 193 See, also ibid., paras 34, 68. 190

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At this stage, it should be noted that according to Article 21 and 3(5) TEU investment liberalization is—next to delineating a competence—another one of the aims that the EU is committed to pursue as a global actor. Yet, the concept of investment liberalization is one of a liberalization embedded in and constraint by considerations of sustainable development, social protection, environmental protection, fairness and more importantly for this book, the protection and promotion of human rights.

2.3.2 Principle of Coherence The principle of coherence is of major relevance for the EU human rights framework and its application to external policies. Improving coherence and unity in external presentation was a key intention behind the reforms of the EU’s external action.194 The Lisbon amendments enshrined the principle in various dimensions in numerous articles195 with, most relevant here, Art. 21(3) reiterating the principle’s overarching application to external and internal policies. The Court is generally willing to derive concrete legal obligations from structural principles when substantive provisions do not provide for a clear answer.196 This case law suggests that the principle of coherence requires setting up institutional and organizational structures for ensuring its observance and its function as an interpretative tool in substantive conflicts. To pin down the precise meaning of the principle of coherence, legal scholars have approached the principle from different perspectives. First, it has been convincingly argued by Christophe Hillion, Cremona and others that the Treaties uphold a notion of coherence that encapsulates the absence of contradictions (consistency) and the purposeful creation of synergies (coherence)—despite the different terminology used and the ambiguous (and unfortunate) translations.197 Further, it has been commonly argued that the seemingly vague concept of coherence can be pinpointed in legal terms which govern the horizontal (between different policy fields) and vertical (between the EU and Member States) relationships. The multi-layered framework developed by Cremona as well as the analysis by Hillion showed how the coherence principle operates and is enforced through other hard rules and organizational principles.198 Bart Van Vooren and Larik convincingly explain a further function of the coherence principle.199 They build on the insights of political or value pluralism theory and argue that the principle of coherence should also be understood as a tool for accommodating political plurality, which—based on the conviction that constant deliberation will lead to Cremona (2011a), p. 314. E.g., Articles 13(1), 16(6), 18(4), 24(3)(2) TEU and 26(2), Article 7, 256 and 334 TFEU. 196 For an analysis of how the Court utilizes structural principles, see Cremona (2014). 197 Hillion (2008), Cremona (2011b), and Hertog and Strob (2013). 198 These are rules of hierarchy, rules of delimitation and rules of cooperation and complementarity. See, Cremona (2011b), p. 55. 199 Van Vooren (2012), pp. 63–67; Larik (2013), p. 289. 194 195

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more productive solutions than a top down application of EU law—should not be constrained but preserved.200 The human rights objective can be related to both dimensions. Building on the legal-operative analyses, it adds a new rule to govern coherence. In light of previous failures to achieve coherence and the adverse impact of such failures for the EU effectiveness and credibility as a global actor, substantive guidance by means of hard law could prove to be a missing ingredient.201 At the same time, the human rights objective facilitates the operation of value pluralism in that it adds a layer of substantive standards to the legal space delineated by the coherence and other structural principles more broadly and constantly refined and strictly enforced by the CJEU. These standards constitute the minimum consensus of a European politico- ideology that external policies should strive for. It is only within the limits of this agreement, that political strategizing, deliberation and balancing have their space. The human rights objective should not only be understood as a new limit, it also provides new impetus for political and judicial discourse beyond blank organizational principles. The broad wording leaves room for the dynamics of plurality while manifesting the agreement already achieved. Whereas the general development towards increased constitutionalizing within the EU might well be accused of unduly constraining political actors and being rather obstructive,202 the abstract wording and the characteristics of human rights as a principle can accommodate the criticism. Unlike many other treaty provisions that arguably overload the constitution with details and complexity, principles as such and especially the human rights notion leave room and require clarifications through constant discourse that at the same time challenges both the subordinated legal systems, subsequent action and the principles themselves. In this public discourse, political actors play a significant role as initiators, representatives of citizens and navigators. Hence, enshrining human rights in the form of a principle and objective in the external constitution does not unduly constrain political actors, but—quite the contrary—may facilitate political discourse. Yet, at the same time, the very core of human rights as well as their prominent status remain shielded from power politics. The overarching objective and principle of human rights protection and promotion can therefore be understood as working closely together with the principle of coherence by providing for the normative frame or to borrow Bogdandy’s words, by adding substance to the ‘grand structural plan’203 according to which the specific policies should be organized. The principle of coherence and the human rights objective are therefore intertwined and should inform each other. This relation is influential for the ‘can’ and the

Van Vooren (2012), pp. 63–67. Also arguing for the need of substance guidance to foster coherence, Hertog and Strob (2013), p. 379; Larik (2013), p. 293. 202 de Witte (2008). 203 Von Bogdandy (2010), p. 98. 200 201

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‘must’ and is elaborated below. Especially, this relation serves as a base for establishing the necessary governance and institutional structures.

2.3.3 Other External Objectives and Principles The other foreign policy objectives and principles of Art. 21 and 3(5) TEU naturally also apply to international investment policy. As stated above, in Opinion 2/15, the Court clarified that Article 21 TEU, Article 205 TFEU and Article 207 (1) TFEU place an obligation on the EU to integrate the general foreign policy objectives and principles into the conduct of CCP.204 The Court also refers to the general horizontal clauses requiring adequate social protection and environmental protection (Article 9 and 11 TFEU) and the objective of ‘free and fair trade’ (Article 3(5) TEU) which form part of the EU’s obligation to integrate sustainable development into its policies and also into CCP.205 Whether the objective of sustainable development enjoys a special relation to CCP cannot be inferred from this decision, because it was the only general objective for which the Court had to define its relation to the CCP competence. However, the Court explicitly derived an obligation for the EU to integrate all general objectives and principles into CCP without any reservations. To begin with, all objectives and principles of Article 21 TEU matter for CCP on equal terms. Pre-Lisbon—as Joris Larik points out—the Court acknowledged that all Treaty objectives cannot be pursued at the same time,206 which on one hand grants the policy maker a considerable margin of discretion and on the other hand puts him/her under a ‘permanent duty to reconcile’.207 While this case-law might in principle still be applicable, the catalogue of different objectives is also not as abstract as it seems and allows for deriving concrete parameters for the exercise of discretion and balancing. These concrete legal consequences depend on the specific factual context according to which some objectives will be more relevant than others. Due to the principle of coherence, they depend on other applicable legislation and policies. Last, but not least, the concrete legal consequences depend on what objective the EU decides to pursue. As will be argued below, the duty to promote entails specific obligations of coherence, of prevention of any retrogression and of demonstrable advancement in relation to the objective that is the aim of an EU act. With regards to the human rights objective, it is important to reiterate that human rights are intertwined with many other objectives, such as sustainable development

Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, paras 142, 143. Ibid., paras 146, 147. 206 Case 112/80, Firma Anton Dürbeck v Hauptzollamt Frankfurt am Main-Flughafen, ECLI:EU:C:1981:94, Judgment of 5 May 1981, para. 44. 207 Larik (2016), pp. 160, 170. 204 205

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and the rule of law. The EU concept of international sustainable development was developed in close connection to the Doha Development Agenda and therefore based on international developments as well as the Treaties’ objectives. It comprises the three pillars of economic, social and environmental development based on solidarity across generations and nations.208 Since the adoption of the human rights based approach to sustainable development (HRBA) at UN level,209 the EU has increasingly stressed the importance on basing sustainable development strategies and their assessments on the normative framework of human rights.210 In addition, the EU concept of the rule of law, which, next to an explicit object and principle of foreign policies (Article 21(1), (2)(b) TEU), constitutes a fundamental principle of EU law ever since Les Verts,211 is a concept based on fundamental rights both in their procedural and substantive dimension.212 The EU further conceives democracy and human rights as inextricably linked and pursues their external promotion through the European Instrument for Democracy and Human Rights (EIDHR).213 Finally, human rights form an independent core principle of EU law.214 As it is settled case-law, the general objectives may allow for legitimate restrictions of fundamental rights,215 but only in compliance with fundamental rights law (i.e. according to Article 52(2) CFR).216 For the relation between the other general objectives and the human rights objectives, this means that the normative framework of human rights/fundamental rights Commission Communication, The 2005 Review of the Sustainable Development Strategy: Initial Stocktaking and Future Orientations, COM (2005) 37 final, Brussels 9 February 2005; Commission Communication, The Review of the Sustainable Development Strategy: A Platform for Action, COM(2005) 658 final, Brussels 13 December 2005; Commission Communication, Trade for All, Towards a more responsible trade and investment policy, COM/2015/0497, 15 October 2015; Commission Communication, Trade, growth and development, Tailoring trade and investment policy for those countries most in need, COM(2012) 22 final, 27 January 2012. See, also Cremona (2009), pp. 256–260. 209 The United Nations Development Group (UNDG) adopted the UN Statement of Common Understanding on Human Rights-Based Approaches to Development Cooperation and Programming (the Common Understanding) in 2003, which serves as a reference point for all UN agencies and other international development bodies. http://hrbaportal.org/the-human-rightsbased-approach-to-development-cooperation-towards-a-common-understanding-among-unagencies#sthash.H7zQsbcv.dpuf. Accessed 14 March 2019. 210 Strategic Framework and Action Plan on Human Rights and Democracy of 25 June 2012 (2012 Action Plan), 5. 211 Case 294/83, Les Verts, ECLI:EU:C:1986:166, Judgment of 23 April 1986, para. 23. 212 For an analysis of the EU concept of the rule of law, see Pech (2009). In contrast to this book, he argues for understanding the foreign policy objectives as constituting ‘“soft” and undefined ideal[s], with no legally-binding force.’ 213 See, http://www.eidhr.eu/home. 214 Joined Cases C-402/05 P and C-415/05 P Kadi I ECLI:EU:C:2008:461, Judgment of 3 September 2008; Joined Cases C-584/10 P, C-593/10 P and C-595/10 P Kadi II ECLI:EU:C:2013:518, Judgment of 18 July 2013. 215 C-84/95, Bosphorus, EU:C:1996:312, Judgment of 30 July 1996, para. 21 with reference to further case-law. 216 See, also, Larik (2016), p. 167. 208

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is the basis for many of the general objectives and therefore turns many of the abstract objectives operative and yet at the same time may constitute a limit for the pursuance of all other objectives. At the same, as indicated in the introduction, some of the conclusions and the methods developed in this book may be transferrable mutatis mutandis to other principles and objectives, especially considering the overlapping aspects.

2.3.4 Other Constitutional Principles The principle of coherence is analyzed separately because of its explicit linkage to the human rights objective and principle in Art 21(3) TEU. Apart from this principle, there are several other general constitutional principles that govern CCP. Amongst others, these are the principle of conferral, primacy of EU law, subsidiarity, effet-utile, the principle of sincere cooperation, principle of institutional balance, rule of law, proportionality, and the principle of careful and impartial examination and transparency.217 The principle of autonomy of EU law in conjunction with the principle of exclusive jurisdiction of the CJEU and of uniform interpretation of EU law as stemming from Art. 19 (1) TEU, Art. 267 TFEU and Art. 344 TFEU will be determinative for the compatibility of any dispute settlement mechanisms and other institutionalizations of international agreements.218 These structural principles are not the focus of this analysis.219 From a human rights and fundamental rights perspective two aspects should be noted: On one hand, it should be kept in mind such constraints flowing from the autonomy of EU law (as interpreted by the Court previously and in Opinion 1/17) may also set limits for institutionalizing more far reaching mechanisms for human rights compliance within the realm of trade and investment agreements. On the other hand, it is noteworthy that also Advocate General Bot in his avis on Opinion 1/17 stresses that the autonomy of EU law as other structural principles is not empty of any content, but that is also relates to the preservation of the EU external objectives.220 The principle of sincere cooperation and subsidiarity is discussed in the context of delineating the EU’s competence for international investment regulation and the consequences of the conclusion that some parts fall under shared competence.221 In substantive terms, the principle of rule of law is closely related to human rights.222 In that regard, it can be referred to the arguments that support the focus on Cremona (2016). For the Court’s considerations of these principles for intra-EU ISDS, see C-284/16, Achmea, EU:C:2018:158, Judgment of 3 June 2018, para. 100. 219 For a discussion about this, see, e.g. Kokott and Sobotta (2016). 220 Opinion 1/17, Opinion of Advocate General Bot (CETA), ECLI:EU:C:2019:72, 29 January 2019, paras 173–177. 221 See Chap. 3. 222 Pech (2012); For a comprehensive analysis and case studies on how the administrative rule of law is giving effect in external relations, see Vianello (2016). 217 218

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human rights over other general foreign policy objectives and principles mentioned the previous section. The third part of the book demonstrates how the remaining general principles in conjunction with the human rights principle and objective can result in concrete legal obligations and how compliance with this legal framework can be operationalized. At this stage, it suffices to point out that the human rights principles and objectives are interrelated with these general principles in different ways. It may give substantive content to procedural principles (duty of care), it may trigger the application of another principle (such as proportionality) or it may be enhanced by other principles (such as transparency and the duty to consult). Due to these various interrelations, it would not make sense to attempt to establish a hierarchical order between these general structural principles and the human rights principle and objective.

2.3.5 General Horizontal Clauses Another EU constitutional specific, the ‘general horizontal clauses’, also covers foreign policy making including international investment.223 These general horizontal clauses cover (next to the principle of consistency, Art. 7 TFEU, which was mentioned above) gender equality (Art. 8 TFEU), social protection (Art. 9 TFEU), non-discrimination (Art. 10 TFEU), environmental protection (Art. 11 TFEU), consumer protection (Art. 12 TFEU), animal welfare (Art. 13 TFEU), protection of services of general economic interest (Art. 14 TFEU), public participation, transparency and access to documents (Art. 15 TFEU), data protection (Art. 16 TFEU) and respect for religious, philosophical and non-confessional associations and their laws (Art. 17 TFEU). In Opinion 2/15, the Court asserted that the trade and investment policy maker must take account of Article 9 and 11 TFEU.224 While Article 11 TFEU emphasizes the relevance of environmental protection within the promotion of sustainable development, Article 9 TFEU does not exhibit any special link to trade or trade- related fields. Hence, although, in Opinion 2/15 the Court did only focus on sustainable development, because this was the issue in question, the conclusion as to the applicability to CCP should likewise be valid for all other general horizontal clauses. It is also noteworthy, that in this context the Court refers, by analogy, to a case about restrictions on internal market freedoms (in casu freedom of establishment), which follows a strict test for a restriction to be permissible, i.e. overriding reasons in the public interest and proportionality.225 It remains to be seen whether the Court was meant to indicate that a measure in pursuance of the general horizontal clauses Vedder (2011), p. 127. Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 146. 225 C-201/15, AGET Iraklis, EU:C:2016:972, Judgment of 21 December 2016, paras 61–104. 223 224

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has to undergo the same test in order to be permissible (similar to the suggestion made by Dimopoulos.) Many of these general horizontal clauses interrelate and overlap with certain aspects of human rights law. The mechanisms that are discussed in this book and in particular in Part III that should enable the EU to discharge their human rights obligations will therefore also serve to comply with the overlapping aspects of these clauses. In the literature, it has been suggested on one hand that general horizontal clauses are even more important than the general objectives.226 And on the other that they are merely meant to enhance the effectiveness of principles and objectives stated elsewhere.227 As it is the case when different rights and interests are at stake, there is a possibility of substantive conflict between the pursuance of human rights externally and the specific scope of protection of the general horizontal clauses. Such conflict will have to be accommodated in the specific case through transparent balancing. Due to the substantial overlap, the clauses will however most likely enhance other concrete human rights.

2.3.6 Conclusion This section first showed that the external constitution does not establish any a priori hierarchy between the specific and the general objectives. The different policy fields are mandated to pursue their specific policy objectives, i.e. Article 206 TFEU lists different aspects of trade liberalization228 and development cooperation has the ultimate aim of global poverty eradication,229 while being required to do so within the framework of the overall objective of human rights protection. Hence, a process of balancing is prescribed for each and within each competence field. However, the new constitutional structure may entail a reverse burden of justification. Compare to the previous situation, in which the incorporation of human rights into trade measures was in need of justifications, the current structures require to take human rights into account, to transparently assess, balance and justify any trade-off. Current policies will have to be re-evaluated in order for them to comply with these reformed legal conditions. There is furthermore no hierarchy between the different general objectives. Many of them are intertwined and some aspects will be more relevant in a certain context than others. The plurality of the different objectives does therefore not lead to releasing the policy maker from taking each one seriously; instead it requires Streinz et al. (2010), p. 133. Terhechte (2016), para. 17. 228 Article 206 TFEU names the harmonious development of world trade, the progressive abolition of restrictions on international trade and on foreign direct investment, and the lowering of customs and other barriers as the overall mission of trade policy. 229 Cf. Article 208(2) TFEU. 226 227

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establishing methods and governance structures to adequately assess their applicability. Other structural principles that guide the processes of policy making and that enjoy established status in EU law confirm and complement the role that human rights play in foreign policy making are outlined in Part III.

2.4 Policy Implications After having mapped out the role that the other pillars of the EU human rights framework should play for EU investment policy making, this section explains the policy implications that stem from the foreign policy objective and principle of human rights protection in Article 21 TEU. First, the policy objective that is now overarching all fields of foreign policy brings about a major shift within the delineation of competences by in particular allowing for more comprehensive human rights approaches within CCP (the ‘can’). To understand the significance of the new structure of foreign policies, this section traces the emergence of human rights approaches within CCP and the justifications that had to be brought to bear in the absence of a clear textual legitimation for human rights inclusion. Within this strict legal framework, a conceptually too narrow human rights approach developed that was based on the idea of trade as a conditionality instrument for inducing the trade partner to comply with international human rights standards while neglecting the EU’s own role for human rights impacts elsewhere as well as the interests of the human rights-holders. However, the fundamental change of the external constitution should entail of a shift of perception as to what EU investment policy maker can actually do. This shift of perception is to some extent also required in order to follow suit with the new standards of the human rights objective as the second part elaborates (the ‘must’).

2.4.1 Competence: The ‘Can’ This section argues that on the basis of the pre-Lisbon structure of external competences the integration of human rights into the EU’s external policies remained fragmented and conceptually too narrow. The different human rights instruments that were developed throughout the policies have been accused of several shortcomings, which can be summarized as being biased, ineffective on the ground, not primarily right-based and as political pressure instruments in disguise.230 Therefore, this section aims to show that the EU concept of human rights protection is ostensibly For instance, Smith (1997); Fierro (2003); Williams (2004); Kochenov (2008a); Beke and Hachez (2015); Hachez (2015).

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primarily geared towards compelling third countries to comply with human rights, while neglecting other threats and other possible pressure points for human rights advancement such as the role of European investors and multinational companies and the perpetuation of impediments or downward trends of human rights standards by EU trade and investment policies. Many shortcomings can be overcome, as this section proposes, by making adequate use of Article 21 and 3(5) TEU. These provisions give human rights a clear place in the hierarchy of foreign policy objectives and provide new legal grounds, which advance a new normative impetus that should steer policy makers towards rethinking traditional models of human rights policy. This section, first, outlines the pre-Lisbon constitutional structures, which constrained overarching human rights approaches, and the justifications of policy makers and in the case-law in support of the few crosscutting human rights efforts that nevertheless emerged. These structures were influential if not determinative for the composition of the human rights tool kit of today. The second part argues that the enshrinement of the transversal human rights objective liberates human rights policies from these limited approaches, enables new perspectives as to the targets and questions the previous hierarchical order amongst competing policy objectives. 2.4.1.1 T he Situation Pre-Lisbon: Human Rights Policy Fettered by Fragmentation Prior to the Lisbon reforms, human rights protection (‘consolidation’) was a specific objective of development cooperation,231 CFSP232 and economic, financial and technical cooperation, the latter being ancillary to other existing competences.233 Apart from human rights as specific external policy objectives, they permeated the EU legal order as general principles and founding values (cf. Article 6 ex-TEU and preamble to the Single European Act), which was confirmed by settled case law.234 It was therefore debated whether human rights as a general principle of EU law would constitute a sufficient legal base for external action that is primarily directed at human rights and outside an expressed competence. In Opinion 2/94, in which the Court ruled on the competence to accede to the ECHR, it rejected that argument and concluded that human rights as a general principle of EU Law can only constrain EU action.235 In the aftermath of this decision, it was argued that the institutional implications of an ECHR accession which the Court already indicated were the Art. 177(2) of the Treaty establishing the European Community of 2002, OJ C 325/33 (ex-TEC). 232 Art. 11(1) of the Treaty on the European Union of 2002, OJ C 325/01 (ex-TEU). 233 Art. 181a(1) ex-TEC. 234 See, e.g. C-4/73, Nold KG v Commission, ECLI:EU:C:1975:114, Judgment of 11 January 1977, para. 13; Case C-260/89, ERT v DEP, ECLI:EU:C:1991:254, para. 41; Opinion 2/94, Accession by the Community to the ECHR, ECLI:EU:C:1996:140, para. 33. See, the discussion in Sect. 2.3. 235 Opinion 2/94, Accession by the Community to the ECHR, ECLI:EU:C:1996:140. 231

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main stumbling block.236 It was concluded that the EU is nevertheless empowered to advance human rights within specific fields in which it does hold competence.237 Indeed, the EU has a long history of deploying a wide array of strategies238 and instruments cross-cutting different policy fields, of which the trade and development nexus is a prime example. Besides using its economic power to advance multilateral reforms in order to shape global economic governance according to its own model, the EU has used concrete ‘carrot and sticks’—strategies in bilateral relations to facilitate human rights compliance of third countries through providing trade incentives for implementing human rights standards and withdrawing them in case of non-compliance.239 Furthermore, economic sanctions have long been used as a response to state action that has been declared (by the UN and/or the EU) constituting a threat for international security, which may be additionally but not necessarily linked to human rights concerns.240 The external human rights efforts which are linked to trade are hence chiefly focused on inducing others to behave according to certain human rights standards, while the degree and the reference points for the required approximation of legislations vary depending on the motives behind the partnership (such as, for instance, accession, development concerns or pure free trade relations). The policy of human rights advancement vis-à-vis developing countries emerged from trade and association agreements rooted in the specific connections of European countries with former colonies and ultimately led to the General System of Preferences (GSP)241 and ‘GSP+’242 for developing countries, ‘Everything but Arms’ for least developed countries,243 the EU’s explicit policy to include human rights clauses (‘essential element clauses’) in all trade agreements with third countries and human rights dialogues.244 Originating in the trade and development nexus, Weiler and Alston (1999), pp. 3, 24 et seqq. Ibid. 238 Such as the EU Sustainable Development Strategy, first adopted in 2001, which was meant to cover all kinds of different policy fields, see Commission Communication of 15 May 2001 ‘A Sustainable Europe for a Better World: A European Union Strategy for Sustainable Development’ (Commission proposal to the Gothenburg European Council) [COM(2001) 264 final—not published in the Official Journal]. 239 For a comprehensive demonstration of how the EU ‘constitutionalizes’ global economic relations, see Larik (2011), pp. 13, 34. 240 This was first done 1982 against the Soviet Union based on the CCP competence, for a detailed discussion on the legitimacy of using the CCP competence, see Koutrakos (2001), p. 60. Now, economic sanctions against states are to be based on a Regulations in accordance with Article 215 TFEU and upon a prior Common Foreign and Security Policy (CFSP) decision. 241 GSP offers non-reciprocal preferential market access to developing countries (Regulation No 978/2012). 242 GSP+ offers full removal of tariffs for ‘vulnerable’ countries which ratified and effectively implemented 27 core international conventions in the fields of human and labour right, the environment and good governance. 243 The EBA program grants duty-free quota-free access to all products, except for arms and ammunitions. 244 Bartels (2008), p. 129. 236 237

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cross-cutting human rights policies were constantly broadened and fostered by the general mission to ‘mainstream’ human rights throughout the policies and to enhance coherence.245 As discussed above, early on the CJEU interpreted the scope of CCP as allowing for the pursuance of non-economic objectives.246 The inclusion of development objectives was based on the observation that international trade relations at that time increasingly pursued development aspects and that a direct link to trade should not only be assumed for traditional aspects of trade as otherwise the EU commercial is ‘destined to become nugatory in the course of time’.247 Restrictions of trade in the pursuance of security objectives were, according to the Court, a matter falling under CCP since individual Member State action to that end would disturb any effective EU common trade policy.248 Today, the trade related measures of the EU human rights package additionally comprise including sustainable development chapters in trade and investment agreements, incorporating human rights in ex ante impact assessments as well as ex post evaluations, further sector specific and country specific initiatives, regulating export controls, promoting corporate social responsibility and general human rights guidelines.249 Without going into a detailed discussion of each instrument, the following will sketch out some of the shortcomings that the EU human rights package has been criticised for. The essential element clauses, for example, are aimed at reacting to human rights violations that are unconnected to the obligations contained in the respective agreement. They are meant to secure (formally for both trading partners, in practice so far only for the EU) a right to take ‘appropriate steps’ that may ultima ratio lead to a suspension of the agreements in cases in which upholding economic relations with a regime that is committing, unwilling or unable to counter mass human rights violations becomes politically intolerable. The case that the obligations themselves prescribed by such an agreement could prevent the trade partner from protecting and fulfilling human rights and thus stand in contrast with human rights obligations

The Commission first stressed the need to ‘mainstream’ human rights into all external policy fields in its Communication to the Council and the European Parliament—The European Union’s role in promoting human rights and democratisation in third countries COM/2001/0252 final of 19 June 2001; For a comprehensive discussion of the development of the mainstreaming und coherence approach, see Gołąbek (2013), p. 307 et seqq. 246 See, Sect. 2.3.1. 247 Opinion 1/78, Natural Rubber, ECLI:EU:C:1979:224, 4 October 1979, paras 44, 45; Case 45/86, Tariff preferences, ECLI:EU:C:1987:163, Judgment of 26 March 1987, para. 20. 248 Case C-70/94 Werner ECLI:EU:C:1995:328, Judgment of 17 October 1995, para. 11, 12. 249 Commission Communication to the European Parliament, the Council and the European Economic and Social Committee, ‘Trade, growth and development’ of January 2012, SEC(2012) 87 final; the EU Action Plan on Human Rights and Democracy 2015–2020, in particular No. 25 a)–e); For a detailed discussion of all trade-related human rights instruments, see Hachez N et al., FRAME: Report on the integration of human rights in EU development and trade policies, 30 September 2014, pp. 30–86. 245

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is not contemplated.250 This is a different logic than that of general exception or carve-out-clauses, such as Article XX of the General Agreement on Tariffs and Trade (GATT), that allow for the adoption of exceptional measures or deviations from trade obligations when necessary to protect the enumerated objectives.251 Furthermore, the human rights clauses have been criticized for their general lack of specific procedures for complaints, dispute resolutions or suspension.252 The rare and selective enforcement of human rights clauses has added to the skepticism. Many observers have noted that all of the 23 cases in which the human rights clause was actually used concerned parties to the Cotonou-Agreement and attacks on democratic principles such as coup d’états and flawed elections, whereas many gross human rights violations committed by EU partner countries have not triggered suspension.253 Furthermore, also the fact that a withdrawal of trade benefits entails a high risk of deepening ongoing human rights violations which is often not comprehensively assessed, prompted critics to categorize this instrument as a political instrument with which all kinds of interests can be pursued but unfit for being a primary human rights instruments.254 Similar criticisms regarding the inconsistency of implementation and uncertainty are raised against the GSP+.255 Ghazaryan, however, also stresses other positive effects that human rights clauses entail apart from threatening with suspensions such as its guiding function for interpretation of the agreement as well as presenting a legal ground for positive measures and financial as well as technical support.256 Furthermore, the human rights clause is only one piece of the EU’s human rights toolkit and considering it in isolation while neglecting the interaction of different mechanism might not do justice to a proper assessment of the EU’s human rights efforts. Nevertheless, one has to note that the relevant actors present the human rights clause as a major instrument for making trade coherent and compliant with human rights and as the proper response for negative

For a comprehensive critique, see Lorand Bartels, A Model Human Rights Clause for the EU’s International Trade Agreements, Study for the German Institute for Human Rights and MISEREOR, 2014, 30 et seq., http://www.institut-fuer-menschenrechte.de/uploads/tx_commerce/Studie_A_ Model_Human_Rights_Clause.pdf. Accessed 14 March 2019. 251 The general exception clauses usually refer to public morals, human, animal or plant life or health as in GATT Article XX. The new EU provisions on the right to regulate are also based on this model, see discussion in Chap. 5, Sect. 5.2.10. 252 European Parliament resolution on the human rights and democracy clause in European Union agreements (2005/2057(INI)), 14 February 2006; European Parliament resolution on the evaluation of EU sanctions as part of the EU’s actions and policies in the area of human rights (2008/2031(INI)), of 4 September 2008; Hachez (2015), p. 20. 253 Ghazaryan (2015), p. 405; Hachez (2015), p. 19. 254 Fierro (2003), p. 100. 255 GSP+ has only been suspended in three cases, which are Myanmar, Sri Lanka and Belarus; For an illustrative case study, see Yap (2015). 256 Ghazaryan (2015), p. 408. 250

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impact stemming from trade and investment treaties.257 Further, from the perspective of the right-based approach proposed by this book even successful diplomacy does not exempt from putting minimum legal and transparent legal safeguards in place. Also more elaborated conditionality instruments of the EU, within the Enlargement as well as within the Neighborhood Policy are commonly criticized for limited or a complete lack of any objective assessment criteria, which makes their enforcement appear ad hoc and inconsistent.258 These inconsistencies and the lack of transparency of the monitoring and enforcement mechanisms in addition to vague terminology259 used in EU agreements turn human rights conditionality into political leverages which runs contrary to a right-based approach that is focused on the empowerment of individuals and participation of the right-holder. Päivi Leino points out that the use of vague terminology (while she mainly refers to terms such as ‘universality’ and ‘common values’) only fosters dominant power relation in which the stronger party is in the position to determine and tailor the meaning according to its ad hoc interests for which conditionality presents a convenient enforcement mechanism.260 The fact that human rights clauses are, if possible, preferably separated from hard law trade obligations into the political framework agreements underlines the perception of human rights as being political and trade commitments as legal.261 Similar criticism has been levelled against the human rights dialogues, which are also presented as a major tool for global human rights protection. Precisely, they have largely been criticized for the lack of reviewing or reporting mechanism, for diverting human rights issues away from high-level politics discussions and as being used as pressure points for furthering other interests.262 However, political leverage, diplomatic sensitivity and flexibility are a crucial factor for the success of highly controversial issues and immediate risk management. The fact that the outcome of a balancing process in specific cases might favour ad hoc action does not justify a general rejection of constitutional and accessible governance structures.

See, e.g. the position of the Commission in EU Ombudsman, Decision in case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, para. 5; Council of the European Union, EU Annual Report on Human Rights and Democracy in the World in 2014, 10152/15, 22 June 2015, pp. 42, 99. 258 Kochenov (2008a); Kochenov (2008b); Gołąbek (2013), p. 312. 259 Such as ‘shared values’ or references to the UDHR which is not legally binding and only comprises a limited range of rights. 260 Leino (2008), p. 287. 261 Lorand Bartels, Study on The European Parliament’s Role in Relation to Human Rights in Trade and Investment Agreements, EXPO/B/DROI/2012-09, February 2014, 11. 262 Fierro (2003), p. 202 et. seqq.; Leino (2005); Gołąbek (2013), p. 341 et seqq. 257

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These limitations do not only become apparent in the choice of instruments but also in their content. The range of human rights referenced is usually limited to core labour rights and environmental rights and maybe subsumed under public policy objectives. Next to the intention to preserve sufficient public policy space, the importance of raising the standards of those rights for global trade stems from the assumption that low standards constitute comparative advantages that should be diminished (so called ‘social dumping’),263 which might explain their original subordinate inclusion. In the absence of any institutionalized operational mechanisms, trade-related human rights instruments have traditionally only allowed for very limited access by individuals or civil society to the decision-making processes and thus impeded the realization of these human rights, access to legal remedy and democratic participation.264 To what extent the recently in trade and investment agreements included civil society mechanisms mitigate these shortcomings is discussed in Part III. The previous division of competence in which human rights were only part of development cooperation and CFSP likely had some influence on the emergence of this limited human rights approach that treats human rights as a ‘political’ issue and as primarily either an international security and stability or development concern, and thus as only ancillary to other domains. Despite many mainstreaming efforts, the current perception of the role that human rights should play still seems to follow this trajectory and by so doing to perpetuate the focus on a limited range of human rights and limited concepts. The avis of AG Sharpston on Opinion 2/15 is exemplary in that regard. She concluded that measures directed at workers’ rights and environment protection only fall under the trade competence if they are solely aiming for eliminating disguised trade barriers or linked to trade conditionality.265 Such an understanding follows the trajectory of a human rights policy that relies on the ‘carrots or sticks’ method with third countries’ governments as the target and as primarily aiming for approximating economic regulations and for establishing the necessary rules for ensuring a stable legal environment needed for an economy that flourishes and attracts foreign investors. Conceiving external human rights protection as mainly a development issue or a conditionality instrument is likely to neglect the EU’s own human rights obligation towards third countries and their populations. Such an approach fails to capture the links between EU policy making and action and the human rights situation of individuals within third countries. It is not equipped to integrate the necessary balancing of the various interests at stake and to facilitate empowerment and free choice of local populations. The conception that the international trade system in which the EU plays a major role necessarily

See, e.g., Bonavita (2011), p. 242. See, e.g. the criticism of the procedures leading to the activation of a human rights clause as expressed in D’Hollander et al. (2014), pp. 69–71. 265 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, paras 489, 489, 490. 263 264

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also regulates human rights and can put even more pressure on a state to comply with human rights is not accommodated. To sum up, the previous structure of EU foreign policy only allowed for measures mainly directed at human rights protection under the framework of CFSP and development policy. The inclusion of human rights concerns within the CCP was legitimate as part of restrictive measures and when linked to trade conditionality. The human rights approach that developed was conceptually too narrow and failed to capture human rights threats immanent to international economic regulation. The reform of the EU external constitution that lead to the enshrinement of an overall human rights objective governing all policy fields could hence turn out to be a necessary stepping stone for overcoming these shortcomings as the next section proposes. 2.4.1.2 What Does the Human Rights Objective Change? A comparative look at the texts shows that the post-Lisbon external constitution exhibiting all-encompassing general objectives that guide all fields of EU external action marks a clear departure from the previous constitutional architecture of foreign policy objectives and policies. The wording and the contextual status of Art. 21 and Article 3(5) TEU give an entirely new structure to the external relation policies on which a fundamentally different human rights approach can be possible or even mandatory and which is needed in light of the criticism raised against previous approaches to external human rights policy. First of all, it is important to stress that the inclusion of human rights as an external objective alone does not provide for a legal basis for broad human rights measures. In that regard, Art. 3(6) TEU makes clear that the objectives referred to in Art. 3(5) TEU shall be pursued ‘commensurate with the competences which are conferred upon it in the Treaties.’ Nevertheless, that would not necessary impede the EU from protecting and promoting human rights through all the instruments it has at its disposal. The Treaties clearly indicate that the different policy fields are mandated to pursue their specific policy objectives while being required to do so within the framework of the overarching foreign policy objectives such as global human rights protection. However, the external constitution does not establish any a priori hierarchy between the objectives. As mentioned above, ATAA case and the restrictive measure cases already conferred some legal relevance to the general objectives. However, the precise implications that should follow from the general objectives for the hierarchy between the objectives and the delineation of competences were not clear and have been debated.266 In the context of horizontal external competence On the competence delineation between CFSP and non-CFSP, see Larik (2013), p. 314 et. seq.; For a discussion on the competence delineation between external and internal competence in the context of restrictive measures, see Case C-130/10, Parliament v Council (Al Qaeda), ECLI:EU:C:2012:472, Judgment of 19 July 2012, para. 62; Case C-130/10, Opinion of Advocate General Yves Bot, Parliament v Council (Al Qaeda), ECLI:EU:C:2012:50, 31 January 2012, paras 62–64.

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allocation, the Commission v Council (Philippines agreement), the Court stated that ‘European Union policy in the field of development cooperation is not limited to measures directly aimed at the eradication of poverty, but also pursues the objectives referred to in Article 21(2) TEU.’267 The Courts reasoning in Daiichi Sankyo rendered after Lisbon in the context of determining the new scope of CCP implied that the questions of competence delineation will have to be answered anew. The Court states that “in view of that significant development of primary law, the question of the distribution of the competences of the European Union and the Member States must be examined on the basis of the Treaty now in force.”268 The Court thereby adhered to a dynamic interpretation of the CCP as initiated on Opinion 1/78.269 With Opinion 2/15, the Court finally was to decide on the role of the general objectives for the competence delineation of the new generation of trade and investment agreement. Moreover, the Court already indicated the constraining effects the general objectives may have on the liberalization of trade. First, of all the Court follows the path of Daiichi Sankyo by stating that the Lisbon amendments of the CCP ‘constitute a significant development of primary EU law’270 in that CCP now ‘includes new aspects of contemporary international trade’271 The ECJ continues: One of the features of that development is the rule laid down in the second sentence of Article 207(1) TFEU that ‘the common commercial policy shall be conducted in the context of the principles and objectives of the Union’s external action’. Those principles and objectives are specified in Article 21(1) and (2) TEU and, as is stated in Article 21(2)(f) TEU, relate inter alia to sustainable development linked to preservation and improvement of the quality of the environment and the sustainable management of global natural resources. The obligation on the European Union to integrate those objectives and principles into the conduct of its common commercial policy is apparent from the second sentence of Article 207(1) TFEU read in conjunction with Article 21(3) TEU and Article 205 TFEU.272

First, it is important to note that the ECJ clearly understands Article 207(1) TFEU, Article 205 TFEU and Article 21 TEU as establishing an obligation to integrate the general objectives and principles into CCP. An obligation to integration implies more than just ancillary provisions. The Court re-emphasizes that ‘sustainable development is henceforth form[ing] an integral part of the CCP’.273 Second, although the subsequent analysis is focused on the objective of sustainable

C-377/12, Commission v Council (Philippines Agreement), ECLI:EU:C:2014:1903, Judgment of 11 June 2014, para. 37. 268 C-414/11, Daiichi Sankyo, EU:C:2013:520, Judgment of 18 July 2013, para. 48. 269 Opinion 1/78, Natural Rubber, ECLI:EU:C:1979:224, 4 October 1979, para. 44. 270 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 141. 271 Ibid., para. 141. 272 Ibid., paras 141, 142. 273 Ibid., paras 146–147. 267

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development because these were the provisions in question, the use of ‘inter alia’ indicates that it is not only sustainable development that is relevant for CCP. The Court directly rebuts many of the limitations that AG Sharpston posed on the inclusion of workers’ rights and environmental protection while relying on pre- Lisbon case-law. A comparison of the arguments employed by the Court and AG Sharpston is therefore a useful starting point for discussing the implications of the constitutional reforms. As already stated above, AG Sharpston concluded that substantial parts of the SD chapter fall outside the trade competence and under shared competence—i.e. social policy (Articles 4(2)(b), 151 and 153(1) TFEU) and environmental protection (Article 4(2)(e) TFEU, Article 191(4) TFEU (385) and the first ground under Article 216(1) TFEU)—as long as they are not solely aiming for eliminating disguised trade barriers or linked to trade conditionality. Although, she also derives an obligation for CCP to ‘have regard’ to the general objectives and principles of Article 21 TEU and 3(5) TEU, yet, she insists on the necessity on a direct link to trade which is only given if the social and environmental protection provisions are aimed at diminishing an unfair competitive advantage.274 To underline her argumentation, she explicitly refers to pre-Lisbon case-law275—which as the Court already decided in Daiichi Sankyo is now obsolete. To apply the traditional direct link to trade test that was developed for CCP measure to the general objectives is not convincing.276 Based on a textual analysis, one could make the argument that if a direct link to trade could be established, such measures would fall under CCP by virtue of Article 206, 207 TFEU. In the case of the general objectives—as the Court rightly points—the relevance for CCP is expressly foreseen in the Treaties (i.e. Article 21(3), Article 205 and 207 TFEU) and should not depend on an additional link. The test of whether a measure promotes, facilitates or governs trade could lead to paradox results: As the Commission points out, also lower standards of labour and environmental rights protection may facilitate trade and investment flows.277 Such a narrow reading of a direct link to trade is therefore misplaced. The EU is under an obligation to design and implement trade and investment policies that are in compliance with human rights protection and promotion. Hence, whatever measures are necessary to ensure such compliance should be legitimate. According to the assessment of AG Sharpston, precisely such measures that might be necessary to that end—such as the establishment of compliance with minimum standards of protection—are excluded from CCP.278 The EU would thus not have the exclusive competence to ensure the compatibility of its trade policy with its constitution. For Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 478. 275 Ibid., para. 481. 276 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 480. 277 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 470. 278 Ibid., para. 491. 274

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CCP to ensure compliance with constitutional requirements of social, environmental, human rights and even with the Charter, it would always depend on shared competence.279 The shift in the Treaties is not reflected in AG Sharpton’s line of reasoning. The Court therefore objects this reasoning and conclusions directly. It holds that it would ‘not be coherent to hold that the provisions liberalising trade between the European Union and a third State fall within the common commercial policy and that those which are designed to ensure that the requirements of sustainable development are met when that liberalisation of trade takes place fall outside it.’280 The ECJ rightly ascertains that the main purpose of the reference to international agreements on environmental and workers’ protection ‘is to ensure that trade between [the two parties] takes place in compliance with the [those] obligations’.281 Further, since a precise distinction between those agreements and provisions that actually cover the trade between the parties and others is hardly feasible, an effective protection justifies a broader coverage.282 In other words, effective protection overrides the necessity of remaining within the limits of the trade linkage. However, some ambiguities remain as to under which conditions SD provisions can be considered falling under exclusive CCP. First, it is not clear whether the exclusion of the SD provision from the dispute resolution mechanisms should be understood as a condition for the SD chapter falling under the exclusive CCP competence.283 Second, it seems that in order to delineate legitimate sustainable development regulation from harmonizing social and environmental standards, the caveat that allows each trade partner to maintain their own levels of protection is necessary.284 Third, although the Court conceives the general objective and in particular sustainable development as an integral part of CCP and the compliance with such as an obligation, it still underlines its conclusions by in fact demonstrating a direct link to trade. For instance, the Court emphasises that the SD provisions are contributing to the elimination of disguised restrictions on trade,285 and of unfair competitive advantages,286 that they are reducing retrofitting costs for economic entrepreneurs287 or are aimed at combatting illegal trading.288

As AG Sharpston confirms in ibid., para. 495. Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 163. 281 Ibid., para. 152. 282 Ibid., para. 153. 283 Ibid., para. 154. 284 Ibid., para. 165. 285 Ibid., paras 156, 157. 286 Ibid., para. 158. 287 Ibid., para. 159. 288 Ibid., para. 160. 279 280

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This part of the Court’s analysis raises questions as to whether the direct link to trade was only additionally mentioned or whether it is an actual threshold which would considerably reduce the compliance argument.289 Further, the Court directly rebuts the conclusions drawn by AG Sharpston in relation to the argument brought forward by the Commission that the SD provisions are ‘not sufficiently prescriptive’ which was sufficient for the Court in Philippines agreement for a provision to be ancillary to development competence.290 The Court uses the same language as in the Philippines agreement case by stating that sustainable development now forms an integral part. It remains to be seen whether this means that the same threshold as to level of prescriptiveness should apply. The first condition could be problematic in that it may induce refraining from further institutionalizing enforcement mechanisms for workers’ rights and environmental protection and beyond and may instead prompt a revival of cooperative approaches based on political dialogues, namely the traditional set of trade-related human rights instruments that were mainly closed to civil society participation. On the other hand, the compliance argument that the Court established might require SD provisions to go further. For instance, in light of the deep and comprehensive scope that the new generation of trade and investment agreements entails in terms of protecting economic operators and investors, the establishment of mechanisms that ensure that other interests are been taken into account and that other rights holders can equally participate may be necessary. However, especially also in light of the second condition, it is unclear to what extent human rights measures that would go beyond international commitments by for example establishing necessary procedural and enforcement mechanisms can be legitimately established by a trade and investment agreement under exclusive competence. This is especially questionable in light of the fact that the enforcement mechanisms were the stumbling block for the investment chapter. One may conclude that the trade conditionality argument employed by AG Sharpston would actually entail a stronger enforcement mechanism in that sense that the she requires failures to comply with the labour and environmental protection standards to have implication on the trade commitments.291 Yet, she seems to follow the old logic of trade as an instrument for inducing human rights compliant behavior (that may be unrelated to trade as it is the case with the human rights clause) of the other state. Further, the Court does not close the door for this kind of trade conditionality by stating that breaches of the SD chapter give a right to suspend the agreement as the traditional human rights clause.292 See, Larik J (2017) Trade and Sustainable Development: Opinion 2/15 and the EU’s Foreign Policy Objectives. In: ACELG. https://acelg.blogactiv.eu/2017/06/08/trade-and-sustainable-development-opinion-215-and-the-eus-foreign-policy-objectives/. Accessed 14 March 2019. 290 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 496. 291 Ibid., para. 491. 292 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 161; See, also Ankersmit L (2017) Opinion 2/15: Adding some spice to the trade & environment debate. In: Eur. Law Blog. 289

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The two questions, first, where to draw the line between trade-related and possibly necessary human rights protection to ensure compliance and general harmonization of social, environmental or human rights that is shared or retained Member States competence and second, what precisely follows from the obligation to integrate the general objectives, are in need of further clarifications. The question of where to draw the line might entail reconsidering the previous aim and content test.293 In order to determine the correct legal base, the CJEU applies a two-pronged test. First, the scope of the field of competence is determined and second the aim and the content of a measure is analysed as to whether the predominant aim or the ‘centre of gravity’ of both the aim and the content falls within that scope. Following Opinion 2/15, the predominant aim of a measure (for instance of the SD chapter) does not have to be the specific policy objective (i.e. with liberalization of trade). The predominant aim could also be to ensure the compliance with a general objective (such as sustainable development or human rights) of another trade measure. The focus of the test should therefore be what kind of measure is needed to ensure the compliance of CCP with the general objectives, which could mean that such a measure might need to go beyond being only ‘ancillary’. How far such measure can go might mainly be determined by way of contrasting CCP to another policy field. As Larik points out, CCP may go as far as the ‘core’ of another competence is not touched upon.294 In light of the shared competences of social policy and environmental protection, that might in fact be easier for social and environmental protection than for human rights broadly speaking, especially because human rights instruments can potentially cover a wide array of different legal fields. Further, one should consider that due to the fact that large parts of economic regulation fall under exclusive EU competence and that human rights (as well as social and environmental rights) are naturally intertwined with many other legal fields, spill-over effects beyond the strict competence delineation are likely. To give an example, in the context of the EU taking over international investment protection from the Member States as a consequence of foreign direct investment being added to CCP, the EU adopted a so called ‘grandfathering regulation’ to regulate the transition phase.295 According to this regulation, Member States can continue to apply their previous investment agreements and negotiate new ones as long as they comply with certain conditions regards the content and the procedures set out in the regulation. Against this background, it is interesting to note that the Council http://europeanlawblog.eu/2017/06/15/opinion-215-adding-some-spice-to-the-trade-environment-debate/. Accessed 14 March 2019. 293 Cf. for instance Case 45/86, Tariff preferences, ECLI:EU:C:1987:163, Judgment of 26 March 1987, para. 11. 294 Larik J (2017) Trade and Sustainable Development: Opinion 2/15 and the EU’s Foreign Policy Objectives. In: ACELG. https://acelg.blogactiv.eu/2017/06/08/trade-and-sustainable-development-opinion-215-and-the-eus-foreign-policy-objectives/. Accessed 14 March 2019. 295 EU Regulation 1219/2012 of the EP and the Council of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries.

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Conclusions on the Action Plan on Human Rights foresees that the ‘EU Member States [shall] strive to include in new or revised Bilateral Investment Treaties (BITs) that they negotiate in the future with third countries provisions related to the respect and fulfilment of human rights, including provisions on Corporate Social Responsibility, in line with those inserted in agreements negotiated at EU level.’296 Although the exclusive competence only concerns foreign direct investment as part of CCP, the impact of CSR mechanisms designed at EU level may go beyond FDI strictly speaking and affect other foreign investment law or general company law instruments at Member State level. Further, also in areas of shared competence, the Member States are under an obligation of sincere cooperation according to Art. 4(3) TEU which requires the Member States to ‘refrain from any measure which could jeopardize the attainment of the Union’s objectives.’ The Court has derived concrete legal obligations of ‘action and abstention’ from the duty to cooperation which seem to become more imperative the more interrelated the fields of competences are.297 Furthermore, it is settled case law that the Member States have to respect in particular the constitutional and fundamental structures of EU law, also when acting in the fields of retained competences.298 The obligation to integrate could result in a reverse of the previous need for justifications. Compare to the previous situation, in which the incorporation of human rights into trade measures was in need of justifications (by being necessary for an effective EU trade policy), the current structures led to—what might be described as—a reverse burden of proof or a reversed need for justification. The general objectives including human rights protection must now be taken into account and conceiving them as an integral part of CCP entails transparent balancing and the justification of any trade-off. The latter is part of the compatibility question and is discussed in the next section. The need to systematically integrate the overarching human rights objective may require establishing the necessary governance structures in order to ensure institutional coherence, i.e. to overcome the problems arising from the division of competence and the consequential diversity of actors and substantive coherence, i.e. to ensure that trade is designed in a way that is not negating other human rights efforts and producing synergies. Such coherence can only be achieved if overarching structures and monitoring bodies are in place. The human rights objective thus empowers the EU to establish such necessary institutional structures. The need to adequately respond to Article 21 TEU by creating the necessary coherence-enhancing s tructures has already been acknowledged by the High Representative Catherine Ashton and

No. 25 (c) of Council of the European Union, 20 July 2015, Council Conclusions on the Action Plan on Human Rights and Democracy 2015–2019, 10897/15. 297 Case C-246/07, Commission v Sweden (PFOS), EU:C:2010:203, Judgment of 2010, para. 74. 298 Case C-124/95, Centro-Com, ECLI:EU:C:1997:8, Judgment of 14 January 1997, paras. 25, 27; for a more detailed discussion, see Chap. 3, Sect. 3.9. 296

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the Commission shortly after the Lisbon reforms.299 While some efforts to implement the later have been taken such as the appointment of the European Union Special Representative (EUSR) for Human Rights,300 more comprehensive governance structures may be required. 2.4.1.3 Conclusion This analysis shows how the restructuring of the foreign policy objectives and competences enables the EU to pursue and implement novel and in particular more comprehensive, less fragmented external human rights policies that overcome the alleged shortcomings and narrow concepts of previous approaches. Especially, shifting the focus away from a conditionality-based development policy enables the EU to properly integrate human rights protection into trade and investment policies and to more adequately take into account its own role as a regulator of global economic structures and their impact on human rights in third countries. To some extent, that has been acknowledged by the EU.301 However, Article 21 and 3(5) TEU enable and mandate moving beyond the revision and marginal reforms of traditional responses. As mentioned above, the EU adopted cross-cutting human rights policies and accepted its major importance for trade well before the entry into force of Article 21 TEU.302 However, the instruments that were adopted as a response, such as the rather political human rights clause,303 are not appropriate means for safeguarding human rights within the contemporary trade and investment regime. The general human rights objective could thus give a new normative impetus for rethinking the previous approaches. An overarching status of the human rights principle might help to ignite an approach that is detached from historical path The Joint Communication to the European Parliament and the Council High Representative of the European Union for Foreign Affairs and Security Policy and Commission ‘Human Rights and Democracy at the heart of EU external action—towards a more effective approach’ COM(2011) 886 final of 12 December 2011. 300 Council Decision (CFSP) 2015/260 of 17 February 2015 extending the mandate of the European Union Special Representative for Human Rights; Article 2 refers to the general objectives of EU external action. 301 See, e.g. Press release of the Council of the European Union, EU adopts Strategic Framework on Human Rights and Democracy, Doc. 11737/12 PRESSE 285, 25 June 2012, http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/131173.pdf, in which the Council acknowledged the need to launch a unified strategy in order to fulfil the EU’s commitment of Art. 3(5) TEU. 302 Communication from the Commission to the Council and the European Parliament—The European Union’s role in promoting human rights and democratisation in third countries COM/2001/0252 final of 8 January 2001, 3. 303 Lorand Bartels, Study on The European Parliament’s Role in Relation to Human Rights in Trade and Investment Agreements, EXPO/B/DROI/2012-09, February 2014, p. 7 with further reference to EU Council, Reflection Paper on Political Clauses in Agreements with Third Countries, Doc 7008/09, 27 February 2009. 299

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dependencies (such as the trade and development nexus as a relic of colonial trade) and less constrained by the necessity of tying human rights strategies to conditionality. It may induce s shift away from generic responses and political tools towards considering and assessing what the actual problems and the most effective strategies are. Recent unilateral initiatives such the EU Regulation on conflict minerals304 or the EU Timber Regulation305 which impose directly applicable due diligence mechanisms on EU companies may indicate a shift of focus towards the influence and connection of EU companies for extraterritorial human rights threats. A more adequate human rights policy can be grounded on Article 21 and 3(5) TEU in conjunction with the specific competence-conferring norm. In sum, the general foreign policy objectives, while not constituting a competence- conferring norm per se, turns in effect every external policy field into a legal base for such measures that are necessary to ensure the compliance of that field with the general objectives. In terms of human rights, it therefore broadens the normative agenda of the EU by requiring a policy shift from focusing on compelling third countries to comply with human rights to measure own policies against human rights standards.

2.4.2 Obligations and Constraints: The ‘Must’ An overview of the different attempts in the literature to grasp the nature of the general objectives has been outlined above, while making the appeal for analysing the human rights objective in context of the specific constitutional structures of the EU. This section applies this approach with regards to the policy implications flowing from the human rights objective by arguing that relating the latter to other applicable law and the factual context allows for deriving obligations. While doing so, this section rebuts other arguments in support of a limited legal relevance of the human rights objective. Those counter-arguments can be subsumed on one hand under preventing ‘value imperialism’ and on the other under undue interference into the foreign policy makers’ discretion. As argued above, the analysis of the human rights objective as part of one bundle of abstract principles led commentators to adopt cautious approaches towards deriving concrete obligations. However, concrete obligations can be derived from the EU human rights framework when viewed against the factual context and in conjunction with other applicable EU law as well as the applicable international human rights law. The factual context and the concrete human rights concerns are elaborated in Part II. Concrete proposals for Regulation (EU) 2017/821 of the European Parliament and of the Council of 17 May 2017 laying down supply chain due diligence obligations for Union importers of tin, tantalum and tungsten, their ores, and gold originating from conflict-affected and high-risk areas, OJ L 130, 19 May 2017. 305 Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market Text with EEA relevance, OJ L 295, 12 November 2010. 304

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appropriate responses based on the theoretical foundation of this part are drawn up in Part III. Legal binding force of the foreign policy objectives has been dismissed or limited because of their vague formulations and their open-endlessness.306 This conclusion is however not applicable for the human rights objective. Compliance with human rights protection, although it might not always be straightforward, is in fact measurable according to an authoritative catalogue of legal entitlements, corresponding jurisprudence and doctrine. This is also true for the procedural human rights law as well as EU procedural law, for instance, transparency or duties to consult. Although, it is a continuous duty without a certain end goal to be achieved, like it is the case with the obligation to accede to the ECHR, it nevertheless requires compliance with precise parameters that one may derive. Precise policy implications can be derived for the substantive level, i.e. the substantive compliance of an EU act such as an investment agreement, and for the procedural level, i.e. the process of decision making and implementation. As Ilaria Vianello points out aptly, holding the EU institution accountable for complying with procedural rules by judicial review is especially important in areas in which outcomes escape judicial review.307 Cremona has demonstrated that the Courts refrain from interfering with the agenda-setting of the foreign policy maker. While preserving an institutional space for the EU foreign policy maker, it also controls the processes of decision-making based on structural principles.308 The burden of proof regards the compliance with duties of process is on the EU institutions.309 They are under obligation to enable judicial review of the processes and thereby to ensure accessibility and transparency of the outcomes. The procedural level therefore gains particular relevance and is the starting point for enabling human rights review on the substantive level. Mark Dawson suggests that the standard of judicial should depend on the rigour with which the limitation of fundamental rights was analysed by the policy makers and whether this analysis was accessible for public deliberation and hence amenable to political accountability.310 In the external sphere, political outcomes are subject to a wide range of political considerations on how to structure international relations and to a variety of different international legal regimes that apply. The Courts meet these needs by granting a wider discretion to the political actors.311 The more important therefore Streinz et al. (2010), pp. 80–81; Drescher (2010), p. 60; Dashwood (2011), p. 24; Lenaerts et al. (2011), p. 111; Pech (2012), p. 12. 307 Vianello (2016), p. 189. 308 Cremona (2016). 309 See, e.g., C-310/04, Spain v Council, ECLI:EU:C:2006:521, Judgment of 7 September 2006, paras 133–135 in which the ECJ held that if the EU institutions are not in the position to prove that they have taken into account and appropriately balanced the different policy options, the proportionality principle is infringed. 310 Dawson (2017), pp. 80–92. 311 T-572/93, Odigitria v Council and Commission, EU:T:1995:131, Judgment of 6 July 1995, para. 38; C-122/95, Germany v Council, EU:C:1998:94, Judgment of 10 March 1998, paras 77, 79; T-512/12, Front Polisario v Council, ECLI:EU:T:2015:953, 10 December 2015, para. 166. 306

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that judicial review of human rights compliance is ensured through procedural requirements. This section proposes an analytical framework to break down the EU human rights framework into concrete legal requirements that will be filled with substance in Part III. Based on analogies from the case-law and the literature, it seems useful to differentiate between the obligation to respect which entails continuous assessment and the obligation to promote which entails a prohibition of regression, the duty to be coherent and to pursue advancement. Both obligations apply to the policy making as well as to the implementation stage as explicitly indicated in Article 21(3) TEU. 2.4.2.1 O bligation to Respect: Continuous Assessment and Adjustment of Policies The obligation to refrain from infringing human rights stems from different sources, which are the international human rights obligations as outlined above, the Charter and fundamental rights as a core principle of EU law. The human rights objective emphasizes that the obligation to respect is also applicable to the making and implementation of the different foreign policy fields. In conjunction with other constitutional principles that are partly stemming from the Treaties and have partly been developed by case law, it become clear that the obligation to respect can only be fulfilled when EU action is assessed appropriately, and policies are adjusted. Those other constitutional principles are amongst others the duty to assess, the duty of diligent fact finding and proportionality. However, other principles may play a role depending on what legal regimes (stemming from EU law as well as international human rights law) may apply. In light of the case-law on general structural principles,312 the only two decisions on the specific context, soft law that is meant to implement explicitly Article 21 TEU as well as the Charter in the external sphere,313 one can derive the obligation to continuous assessment and corresponding adjustment of trade policies. The two decisions, from the Ombudsman and the General Court respectively, in which the duty to assess was applied in the context of external human rights protection and EU trade policy are most informative in this regard. The Ombudsman only reviews for maladministration based on the on the European Code of Good Administrative Behaviour (ECGAB),314 which however covers legality of an act (Article 4 ECGAB). The Ombudsman has proven to be an important and influential institution—filling to some extent the vacuum of rights protection in the external E.g., Case C-269/90, Technische Universität München, ECLI:EU:C:1991:438. E.g. DG Trade, EU Commission (2016), Handbook for sustainability impact assessment, 2nd edition. http://trade.ec.europa.eu/doclib/docs/2016/april/tradoc_154464.PDF; DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives. 314 The ECGAB was approved by the EP in 2011 as it was empowered to do so by then Article 195(4) TEC. It also meant to implement the right to good administration of Article 41 CFR. 312 313

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sphere.315 In her decisions, she has repeatedly turned broad constitutional principles into clear imperatives for the EU foreign policy maker.316 In Polisario, AG Wathelet also directly referred to the Ombudsman.317 In Polisario, the General Court reproached the Commission for having failed to comply with the obligation to assess and therefore committed a manifest error of assessment by failing to conduct an Impact Assessment of the fundamental rights issues that were knowingly at stake.318 Previously, and referred to by the AG in Polisario, the Ombudsman has already reproached the Commission for the failure to conduct a human rights impact assessment prior to the conclusion of the FTA with Vietnam. She derived the duty to conduct HRIA and the duty of care not by referring to the previous case law but directly from the spirit of Article 21(1) and (2), Article 207(1) TFEU and the 2012 Action Plan.319 She noted that a wide margin of discretion should not be confused with making respect for human rights ‘subject to considerations of mere convenience’.320 According to her, there is also no substitute for the conduct of a HRIA since the Commission has to demonstrate that all necessary factors and circumstances have been taken into account in framing a policy’.321 Further, she added that the function of HRIA is also ‘eliminating or avoiding such negative effects on human rights’.322 Also, other case-law and soft law instruments support such an obligation to act accordingly.323 The Ombudsman324 as well as the Commission in their self-imposed guidelines have recognized that such an obligation applies during the policy making as well as implementation stage.325 Viewed together with other constitutional principles of EU law and pertaining case-law and as confirmed by the few specific decisions, the human rights objective See, also Vianello (2016), p. 194. See, e.g. the decisions in 2014 and 2015 in relation to EU Ombudsman, Transparency and public participation in relation to the Transatlantic Trade and Investment Partnership (‘TTIP’) negotiations, OI/10/2014/RA, 6 January 2015. 317 Case C-104/16 P, Opinion of Advocate General Wathelet, Front Polisario v Council, ECLI:EU:C:2016:677, 13 September 2016, para. 264. 318 See, also Chap. 6, Sects. 6.2.2.2 and 6.2.2.3. 319 EU Ombudsman, Decision in case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, paras 11, 13. 320 Ibid., para. 13. 321 Ibid., para. 25. 322 Ibid., para. 27. 323 See, e.g. C-12/03 P, Commission v Tetra Laval, ECLI:EU:C:2005:87, Judgment of 15 February 2005, para. 39 and further case law in part III. DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 12. 324 EU Ombudsman, Decision in case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, para. 25; EU Ombudsman, Decision in case 506-509-674-784-927-1381/2016/ MHZ on complaints against the European Commission concerning a human rights impact assessment in the context of the EU-Turkey Agreement, 18 January 2017, para. 29. 325 DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 13. 315 316

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requires setting up the procedures for ensuring assessment and adequate responses in order to ensure compliance. In fact, the EU human rights framework can be understood as giving the substantive content to many structural principles of process. 2.4.2.2 O bligation to Promote: No Regression, Coherence and Contribution to Human Rights Realization The obligation to promote can be derived from Article 21 and 3(5) TEU as well as from the Charter. Since this obligation is rather unique in nature, the discussion of the meaning of the obligation is sketched out here. The Ombudsman inferred from the human rights objective that next to the obligation to respect, the EU is under an obligation to prevent regression and to aim for furthering. She concluded in the FTA Vietnam case that the ‘[t]he EU Administration should not only ensure that the envisaged agreements comply with existing human rights obligations, and do not lower the existing standards of human rights protection, but should also aim at furthering the cause of human rights in the partner countries’.326 Several commentators have analysed the duty to promote stemming from the Charter, which is not only of interest here because of the Charter’s application to investment policy making but also because those analyses give insights into the logic of a duty to promote. There is agreement that at the very least, the mandate to promotion entails a prohibition of regression. Tamara Hervey and Jeff Kenner ascertain that the duty to promote entails the obligation not to retract from a right once given.327 Nicole Lazzerini argues it would clearly be at odds with such an expressed commitment to promote enacting legislation that leads to the decrease of human rights standards internally as well as externally.328 Koen Lenaert points out, that the general prohibition of regression can also be inferred from Art.53 CFR, ‘which should be interpreted as a ‘standstill’ clause, according to which the Charter does not allow a reduction of the level of fundamental right protection currently attained by EU law’.329 Steve Peers approaches the legal meaning of promoting the application by drawing on the Test-Achats case.330 In this case, the CJEU found an EU Directive to be in breach of Article 21 and 23 CFR because it allowed for the calculation of insurance benefits based on sex-specific risk assessments. In this context, the CJEU elaborates EU Ombudsman, Decision in case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, para. 10. 327 Hervey and Kenner (2003), p. viii. 328 Lazzerini (2013), p. 152. 329 Lenaerts (2012), p. 402. 330 Peers (2010), p. 306; C-236/09, Association Belge des Consommateurs Test-Achats and Others, ECLI:EU:C:2011:100, Judgment of 1 March 2011. 326

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on the EU duty to act with regards to combatting discrimination based on sex. The Court ascertains that ‘in the progressive achievement of [the objective of Art. 19 (1), i.e. equality], it is the EU legislature which […] determines when it will take action, having regard to the development of economic and social conditions within the European Union. However, when such action is decided upon, it must contribute, in a coherent manner, to the achievement of the intended objective.’331 Peers interprets this judgment as giving the legislator ‘discretion over the timing of taking action (when), [but] not over whether to take action at all.’332 However, as Peers notes, this duty was not directly inferred from the Charter but from Art 19(1) TFEU.333 Art 19(1) TFEU rightly has to be distinguished from the Charter. While the wording of Art. 19(1) TFEU is not necessarily more stringent (‘may take appropriate action’), this provision is a competence-conferring norm in that it allows the EU to adopt legislation including harmonization measures to combat discrimination, which is not the case for the Charter rights.334 Art. 19(1) TFEU also only applies within the limits of the powers conferred. As far as the Charter imposes positive obligations to act, this could also entail that the EU has to enact legislation limited to the competences conferred. The same is true for the external human rights objective and principle. However, an obligation to act will be informed by the policy field in which the EU enjoys competence and can only be realized with such means. Additionally, this case also offers insights in the legal requirements imposed on the EU once an action was decided, that is with regards to the Charter as well as with regards to the general human rights objective. The Court elaborates that in light of the (several) tasks enshrined in Art. 3(3) TEU, it is the ‘EU legislature which […] determines when it will take action, having regard to the development of economic and social conditions within the European Union. However, when such action is decided upon, it must contribute, in a coherent manner, to the achievement of the intended objective.’335 This logic can be transferred to the human rights objective. When the EU legislator decides to pursue the external human rights objective (of Art. 3(5) and Art. 21(2)(3) TEU), this has to be done coherently and in a manner that is actually advancing human rights. In this context, it is important to note, that in the Test- Achats case, the quashed provision was allowing for derogations from the general aim of that legislation which was combatting gender discrimination. The CJEU stressed that the entire legislation in its effect has to be in compliance with Art. 3(3), Art. 8 TEU and the Charter, in other words the entire framework informing the meaning of gender equality. From this reasoning, one can generalize that whether legislation is actually contributing to the objective chosen has to be deter-

C-236/09, Association Belge des Consommateurs Test-Achats and Others, ECLI:EU:C:2011:100, Judgment of 1 March 2011, paras 20, 21. 332 Peers (2010), p. 306. 333 Ibid., p. 306. 334 See, e.g. Art. 6(1) TEU, Art. 51 (2) CFR, and specifically Explanation to Art. 21 CFR. 335 C-236/09, Association Belge des Consommateurs Test-Achats and Others, ECLI:EU:C:2011:100, Judgment of 1 March 2011, paras 20, 21.

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mined in light of the entire legal framework that informs the meaning and scope of this objective. Applying the Court’s reasoning to the human rights objective has two consequences. First, the coherence and the existence of an advancing effect have to be measured against the entire human rights framework including the human rights as a principle and objective and the Charter. Second, whenever the EU decides to pursue the human rights or sustainable development within the investment competence (as often indicated in the preamble), this has to be done in a way that is contributing to the realization of human rights and in a coherent manner. In light of this obligation to be coherent, it is important to recognize the emphasis on universality and indivisibility with regards to human rights as well as the prominent role that equality and non-discrimination enjoy in EU law in general. These fundamental principles question selective human rights approaches that only protect certain rights or only certain rights-holders.336 By enshrining the twin principles of equality and non-discrimination, the EU concept reflects the structures of international human rights law. Equality and non-discrimination are recognized as being among the most fundamental elements of international human rights law. Discriminatory practices—both overt and covert—are understood to be the root cause for many systemic human rights violations.337 What it means for a certain act to be coherent obviously depends on many factors such as other applicable legislation, parallel policies that are concerning the same context, the international framework, specific as well as structural problems and— for the Court often only—the expressed intention of the law maker.338 In abstract, one can argue that the EU policy maker is required to put governance structures in place that assess the coherence with the EU human rights framework in its entirety and that enable to react to imbalances in the protection of human rights. One tool for ensuring equality of rights protection and for contributing to the realization of human rights is setting up governance structures that facilitate the empowerment and participation of human rights-holders within policy fields in which they are traditionally disregarded.339 Procedures as well as outcomes that are framed as implementing the EU human rights framework should in themselves contribute to the realization of human rights. Further, whereas there might be a considerable margin of discretion as to the precise outcome of a decision-making process or as to the target and agenda of policy measures, once a policy measure is explicitly aiming for human rights promotion, certain requirements need to be fulfilled. For this reason, a regime that is only protecting property rights of certain actors is questionable as well as the selective integration of only labour and environmental rights. 337 Office of the United Nations High Commissioner for Human Rights (UNHCR), Principles and Guidelines for a Human Rights Approach to Poverty Reduction Strategies, HR/PUB/06/12, 2004, para. 21. 338 See the discussion on Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017 in Sect. 2.3.1. C-377/12, Commission v Council (Philippines Agreement), ECLI:EU:C:2014:1903, Judgment of 11 June 2014, paras 49–55. 339 These aspects are elaborated in detail in Part III. 336

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It already becomes apparent that setting up such governance structures does not result in conditioning other states to apply EU fundamental rights and therefore does not inevitably lead to—what commentators have termed—‘western human rights imperialism’.340 It might even run less of a risk to perpetuate western human rights imperialism than trade conditionality. The critical human rights discourse has challenged the practice of aiming to reform third states through abstract notions of human rights and ‘good governance’ for not being empowering but as replicating regulatory dominance and imperialistic patterns.341 Meaningful participation and empowerment mechanisms entail the potential to overcome those risks inherent in previously criticised human rights approaches, but certain conditions should be put in place. Part III that is exploring participatory mechanisms as one possible response to the inequalities persistent in the current investment regulation is therefore also engaging with proposals and critiques of increased participation in the critical human rights discourse.342 The coherent rights-based approach suggested here includes but is not limited to the ‘human rights based approach to development’ (HRBA) as promoted by international development bodies343 and which the EU transcribes to its development policy according to the 2012 Action Plan on Human Rights and Democracy344 and the 2017 European Consensus on Development.345 This approach is first and foremost a development strategy and thus remains within the realm of development programming, conditionality and state aid. Further, HRBA understands solely third states as duty bearers. There is little consensus on a global and on EU level as to the precise content of this approach and its policy implications; beyond the aim of integrating and mainstreaming human rights in development policies.346 Observers have criticised that the HRBA of EU development cooperation is still missing a ‘substantive rethinking from a human rights perspective’ and stated that the promotion of local stakeholder to create and use their local policy space, i.e. direct empowerment of right-holder, remains a challenge.347 This challenge appears even more salient Wouters (2001), p. 9. Seck (2008), p. 588. 342 In particular, Seck (2008). 343 The United Nations Development Group (UNDG) adopted the UN Statement of Common Understanding on Human Rights-Based Approaches to Development Cooperation and Programming (the Common Understanding) in 2003, which serves as a reference point for all UN agencies and other international development bodies; http://hrbaportal.org/the-human-rightsbased-approach-to-development-cooperation-towards-a-common-understanding-among-unagencies#sthash.H7zQsbcv.dpuf.Fnom 344 E.g., point 12 of the Strategic Framework and Action Plan on Human Rights and Democracy of 25 June 2012 (2012 Action Plan), http://data.consilium.europa.eu/doc/document/ST-11855-2012INIT/en/pdf. 345 Joint statement by the Council and the representatives of the governments of the Member States meeting within the Council, the European Parliament and the Commission, The New European Consensus on Development, ‘Our World, Our Dignity, Our Future’, 30 June 2017, paras 2, 16. 346 D’Hollander et al. (2014), p. 9. 347 Ibid., p. 12. 340 341

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from a cross-cutting policy perspective when other policy fields such as trade and investment remain ignorant towards meaningful participation of civil society and are not sensitive towards their impact on domestic policy space and the actual distribution of power and representation of interests within the respective third state. The New European Consensus on Development seems to break with this previous thinking in silos while stating that ‘[the EU] will also continue through its trade policy to ensure that developing countries, particularly the most vulnerable, reap the benefits of inclusive growth and sustainable development from enhanced participation in regional integration and in the multilateral trading system’.348 It remains to be seen whether the policy instruments adopted to that end remain limited to state aid initiatives and conditionality or whether they constitute one step towards mitigating the concerns elaborated in the previous Sect. 2.4.1.1. 2.4.2.3 Conclusion This section of the book showed that the human rights mandate is not a vague aspiration that policies should somehow strive towards to. The legal effects of the EU human rights framework can be broken down into two main obligations: The obligation to respect and the obligation to promote. Both obligations apply at the treaty making as well as the implementation stage. The obligation to respect entails the obligation to continuously assess EU action and to adjust it accordingly. The precise legal framework that informs these obligations is drawn up in Part III as it becomes clearer when confronted with the factual problem. The obligation to promote entails the prohibition of regression, the obligation to act coherently in a manner that is contributing to the realization of human rights. How these obligations can be operationalized and judicially reviewed is elaborated in Part III. Partly, the human rights mandate gives additional content to other structural principles which are already embedded in current policy making, partly, it will require adjustment of policy making procedures.

2.5 Judicial Implications This section outlines the judicial implications that follow from the human rights objective. It especially discusses what the human rights objective may add to previous judicial approaches to the EU human rights framework in relation to external policy making. This analysis can be divided into investigating the effects of Article 21 TEU on the judicial review of the legal base, of the procedural duties and of the substantive compatibility of an act. Within each of these categories the law-maker Joint statement by the Council and the representatives of the governments of the Member States meeting within the Council, the European Parliament and the Commission, The New European Consensus on Development, ‘Our World, Our Dignity, Our Future’, 30 June 2017, para. 48.

348

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may enjoy a certain margin of discretion that is shielded from judicial review. Hence, the crux of the matter is to define the boundaries of discretion and to determine what constitutes a manifest error of assessment, which would lead to the illegality of the EU act in question. A rich body of scholarship has attempted to map certain rules according to which the Court structures its standard of review,349 which Part III is coming back to in more detail. This part aims to point to the locales in which Article 21 TEU (in conjunction with other applicable norms) may impose new limits on the law making and provide new guidance for judicial review on each level. Further, it aims to identify cases in which Article 21 TEU already began to gain traction. Besides, this section signals where the impact of Article 21 TEU is more unclear and where in the author’s view it is dictated by the EU constitutional framework. The choice of the correct legal base and procedural requirements such as the compliance with the applicable legislative procedure are part of the formal legality. These procedural requirements should not be confused with the procedural duties proposed by this book and which form part of the material legality or internal legality. These procedural duties can be described as the methodology leading to the final decision that constitutes the content of the act (such as the correct assessment of the facts and the proper balancing). Next to the illegality of an Act according to Article 263 TFEU, the Court can also ascertain a failure to act in breach of EU law according to Article 265 TFEU. An obligation to act may be grounded in primary or secondary EU law as well as in general principles.350 Article 21 TEU may be also be relevant in this context in that it could delimit the margin of discretion to such an extent that an obligation to act exists. It is noteworthy that an action for failure to act is subsidiary to an action for annulment.351 Therefore, if an act was adopted in infringement of certain procedural duties (i.e. in the absence of a required fundamental rights assessment), it will be treated as a question of legality of the act concerned. The question of the legality of an EU act can also arise as part of a reference by a national court under the preliminary ruling procedure (Art. 267(1)(b) TFEU), as part of an action for establishing non-contractual liability according to Article 340(2) TFEU or as part of the opinion procedure (Article 218 (11) TFEU). The discussion on the effects of Article 21 TEU on the delimitation of competences and the choice of the correct legal base was already held in the previous sections. The reformed procedural requirements of the post-Lisbon CCP are briefly discussed in the next chapter. For the arguments of this book, they are mainly relevant for understanding the inter-institutional dynamics and a possible strategic See, e.g., Fritzsche, who has outlined a convincing typology divided into (a) the weighing of interests and policies, (b) expert knowledge and expert committees, (c) the appraisal of complex economic matters and (d) complex value judgments, Fritzsche (2010). 350 For a review of a failure to act based on general principles, see Case 64/82, Tradax Graanhandel BV v Commission, ECLI:EU:C:1984:106, Judgment of 15 March 1984, paras 13, 14. 351 Gaitanides (2015), para. 3; Case 42–71, Nordgetreide, ECLI:EU:C:1972:16, Judgment of 8 March 1972. 349

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interest in invoking Article 21 TEU. In terms of material legality, Article 21 TEU may add substantive parameters that should guide decision making processes as well as their results. This is concretely demonstrated in Part III of the book. This section outlines the locales in which the post-Lisbon human rights framework changes previous approaches. These are (Sect. 2.5.1) the legal protection of citizens outside the EU and in this context the perspectives on extraterritorial effects of EU acts and (Sect. 2.5.2) the interpretation and limits of discretion that are part of the material legality.

2.5.1 E xpansion of the Legal Protection of Individuals Outside the EU? The main hurdle for affected individuals intending to challenge an EU act in general is the restrictive interpretation of the standing requirements, which the CJEU has not lifted despite severe criticism by academia and civil society actors.352 Since the CJEU has also restricted the third head introduced into Article 263(4) TFEU by the Lisbon amendments which covers regulatory measures that are not legislative acts and do not require implementation,353 in the majority of cases, non- privileged applicants will have to prove their direct and individual concern. According to long-standing case-law, a person is directly concerned when no discretionary implementation measures are necessary.354 Individual concern requires the applicants to prove that they are affected by a decision because of certain attributes which are peculiar to them or because of circumstances in which they are differentiated from all other persons just as in the case of the person addressed.355 This requirement is obviously not only specifically difficult for individuals outside the EU, but constitutes a major difficulty for EU citizens alike. In the extraterritorial scenario, an additional hurdle was discussed, namely whether any direct effect is per se excluded. In Commune de Champagne, the General Court concluded that an EU legal act could never entail any direct effect outside EU territory.356 In this case, Swiss applicants challenged an agreement on trade in agricultural products for imposing a ban that would prohibit them from marketing the wines originating in the Commune of Champagne in the canton of Vaud under the name ‘Champagne’ due to the protected designation that certain French sparkling wine enjoys under EU law. The General Court—relying on the principle of sovereign equality of Article 2(1) of the UN Charter—precluded the

For a detailed critique, see Koen et al. (2014) and Rhimes (2016). See, e.g. C-583/11 P, Inuit, ECLI:EU:C:2013:625, Judgment of 3 October 2013, paras 60–61; C-456/13 P, T & L Sugars, ECLI:EU:C:2015:284, Judgment of 28 April 2015, para. 41. 354 Case 294/83, Les Verts, ECLI:EU:C:1986:166, Judgment of 23 April 1986, para. 31. 355 Case 25–62, Plaumann, ECLI:EU:C:1963:17, Judgment of 15 July 1963, p. 107. 356 Case T-212/02, Commune de Champagne, EU:T:2007:194, Judgment of 3 July 2007, para. 90. 352 353

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application of EU rights and obligations on non-EU territory.357 Additionally, the Court stated that in accordance with article 299 EC (now 355 TFEU): ‘[…] an act of an institution adopted pursuant to the Treaty, as a unilateral act of the Community, cannot create rights and obligations outside the territory [of the Union]’.358 The decision to conclude the agreement, as a unilateral act of the EU, would not bring about a change of legal position.359 This judgment has been sharply criticised as being inconsistent with previous case law and as flawed from a public international law perspective. Lorand Bartels argues that the General Court misunderstood the principle of sovereignty, which does in fact allow for extraterritorial effect under certain circumstances.360 Aravind Ganesh agrees with Bartels on this aspect and points to an earlier judgment in which the CJEU interpreted the same provision as to ‘not preclude Community rules from having effects outside the territory of the Community’.361 Indeed, the General Court seems to err on what constitutes an interference in breach of public international law. Legal effects can be produced under public international law in accordance with the principles allowing for extraterritorial prescriptive jurisdiction (such as the nationality principle, the protective principle and as argued by some under the domestic-effects-doctrine).362 Further, extraterritorial impact can be subtler as seen in the examples of territorial extension which is not extraterritoriality strictu sensu.363 Furthermore, certainly extraterritorial legal effects are produced when legislating through an international agreement in cooperation with the other sovereign state. An assessment of any legal effect should therefore not be excluded from the outset. Further, the General Court seem to confuse that the judgment itself would not amount to a breach of the principle of non-interference since it would not have any binding effect upon the trade partner but only upon the EU due to limited enforcement jurisdiction.364 The sovereign state could still decide how to respond to such a judgment and the EU would have to face the first and foremost internal consequences. It could also be added that, dividing the judicial review into on one hand being only concerned with the agreement which is not an act of the institution and therefore not legally challengeable and on the other hand being only concerned with the act of an institution (i.e. the decision of the Council and the Commission) which does not entail legal effects extraterritorially and is therefore neither challengeable, is an artificial fragmentation that is contrary to the right of effective legal remedy. Ibid., para. 89. Ibid., para. 90. 359 Ibid., para. 91. 360 Bartels (2014), p. 1088. 361 Ganesh (2016), p. 501; with further reference to Case C-214/94, Boukhalfa v Bundesrepublik Deutschland, ECLI:EU:C:1996:174, Judgment of 30 April 1996. 362 Brownlie (2008), pp. 303–305; The domestic-effects doctrine has for a long time been argued by the US in the context of competition and environmental regulation, Trachtman (1993), p. 55. 363 See discussion above in Sect. 2.2.2. 364 See, also generally on the preclusion of an extraterritorial reach for EU judgments, Dawson (n 274) 81 with further references. 357 358

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On these grounds, it was previously held in the case-law, that the international agreement is part of the Council decision which is directed at concluding the former for the matter of judicial review.365 The Court has also consistently examined international agreements for their direct and individual applicability on EU citizens.366 In Mugraby and Front Polisario, the Courts applied this test to non-EU citizens residing outside the EU without discussing any exclusion because of extraterritoriality. In both cases, the Court cited settled case-law on internal impacts stating that an international agreement is directly applicable when, ‘regard being had to its working and to the purpose and nature of the agreement, the provision contains a clear and precise obligation which is not subject, in its implementation or effects, to the adoption of any subsequent measure’.367 As in these cases, such direct applicability is likely to be accepted for many provisions of trade and investment agreement that do not depend on any implementing measures. However, increasingly direct effect is explicitly excluded in the agreement.368 In Polisario, the ECJ refers again to the Council’s argument based on Commune de Champagne that EU law should not be applicable for judging the legality of the effects of an agreement on a third state, but did not decide on this argument since it ultimately refutes any application of agreement to the territory in question.369 In addition, the provision on sustainable development, social and environmental rights are usually phrased broadly and require national implementation.370 In Mugraby, the Court excluded direct applicability for a human rights clause, which reflects the standard wording of the EU human rights clause, because it only gave a right to both parties to take appropriate steps.371 Next to direct concern, for trade and investment agreements, individual concern remains the major challenge. In that context, the acceptance of Polisario as the UN-accepted representatives of the Sahrawi people probably may constitute a special case.372 The Court did not have to decide this contentious question.373 Explicitly on these grounds, Case C-327/91, French Republic v Commission, ECLI:EU:C:1994:305, Judgment of 9 August 1994, para. 16. 366 Case 12/86, Demirel, ECLI:EU:C:1987:232, Judgment of 19 May 1987, para. 17; Case C-240/09, Lesoochranárske (Aarhus Convention), ECLI:EU:C:2011:125, Judgment of 8 March 2011, para. 44. 367 T-292/09, Mugraby v Council, ECLI:EU:T:2011:418, Judgment of 6 September 2011, para. 65; T-512/12, Front Polisario v Council, ECLI:EU:T:2015:953, Judgment of 10 December 2015, para. 107. 368 For a discussion on the exclusion of direct effect in EU agreements that include dispute settlement mechanisms, see Gáspar-Szilágy (2013). 369 C-104/16 P, Front Polisario v Council, ECLI:EU:C:2016:973, Judgment of 21 December 2016, para. 78. 370 How civil society can invoke SD provisions nevertheless is discussed in Chap. 6. 371 T-292/09, Mugraby v Council, ECLI:EU:T:2011:418, Judgment of 6 September 2011, paras 68, 69. 372 T-512/12, Front Polisario v Council, ECLI:EU:T:2015:953, Judgment of 10 December 2015, para. 113. 373 C-104/16 P, Front Polisario v Council, ECLI:EU:C:2016:973, Judgment of 21 December 2016, paras 114, 131, 132. 365

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Further, the case-law on smart sanctions (Article 215 TFEU) and counter- terrorism sanctions (Article 75 TFEU) shows that unilateral foreign policy measures can have direct and individual effects. Seminally in Kadi, the CJEU stressed that effective judicial protection as a fundamental right forms part of the Union’s general principles and fundamental core which extends to the external sphere and is therefore invocable by individuals who are neither EU citizens nor EU residents.374 It was also ascertained in the Kadi saga and repeated many times after, that the Court is willing to engage in substantial (and in principle full) review when fundamental rights are at stake and that political consideration such as protecting sensitive international relations must not override fundamental rights. However, one may add that the subsequent fundamental rights assessment of both the smart sanctions and restrictive measure cases is questionable on many grounds and often rather superficial (for the former more than for the latter).375 Next to the restrictive measure cases, they have only been few cases on alleged extraterritorial fundamental rights violations committed by the EU as discussed in Sect. 2.2.2.2. In sum, much hinges on the formulations of the provisions in the trade and investment agreement and whether the CJEU continues to apply the same conditions for determining direct effect as it does internally. This has not change with Article 21 TEU. However, it is also clear that a direct and individual concern for individuals outside the EU is not excluded. Further, Article 21 TEU in conjunction with the EU human rights framework may become relevant as guiding the interpretation of the concerned provision. In order for a norm to be in compliance with the general objective of human rights protection, it could be interpreted in such a way as being directly applicable, especially when the intention of the legislation in question was to contribute to human rights. This question emerges with the assessment of material legality, which is discussed next.

2.5.2 New Benchmarks for Material Legality? A further locale for an impact of the Article 21 TEU objectives is the ‘choice of legal base’ assessment. The potential impact has been discussed extensively in Sect. 2.4.1. In addition, the human rights objective should play a role in the assessment of the material legality of a measure, which covers procedural and substantive legality. As to a potential impact on the substantive legality, the ATAA case provides an example in which the CJEU applied the overarching policy objectives as a yardstick

Joined Cases C-402/05 P and C-415/05 P Kadi I ECLI:EU:C:2008:461, Judgement of 3 September 2008; Joined Cases C-584/10 P, C-593/10 P and C-595/10 P Kadi II ECLI:EU:C:2013:518, Judgement of 18 July 2013. 375 For an analysis of the fundamental rights protection in smart sanction and counter-terrorism measures, see Eeckhout (2011), pp. 512–528. 374

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for validity.376 In this case, Art. 3(5) TEU was used as a door opener to let international customary law enter the EU legal order and hence to make it justiciable by the CJEU. The Court made it clear that the substantive requirements that follow from the CJEU’s interpretation of international customary law have the potential ‘to call into question the validity of an act of the European Union’, yet, only within the limits of a manifest errors of assessment review.377 This is however not a new development. The Court has also previously reviewed EU legal acts against international customary law prior to the inclusion of Article 21 TEU.378 The Court has been more reluctant towards basing a judicial review on international treaty law. Whether international human rights conventions could be the basis for validity of an EU act is therefore questionable if the CJEU follows its previous case law, even in cases in which the EU’s duty not to impede the performance of the obligations of Member States which stem from an agreement according to Article 351 TFEU applies.379 According to this case-law, an EU legal act can only be reviewed against an international treaty when the EU is bound by the rules and ‘the nature and the broad logic of the latter do not preclude [such a review] and, in addition, the treaty’s provisions appear, as regards their content, to be unconditional and sufficiently precise’.380 Whereas the second condition should be fulfilled by human rights norms, the first condition will likely exclude the human rights conventions the EU is not a party to. Validity of an EU act can than still be assessed against customary human rights law, the ECHR and the CFR. Article 21 TEU is not likely to make a difference here in that it would alter the conditions for an international human rights treaty to apply or make the EU as a matter of EU law bound to international treaties it is not a party to. Similarly, the objective of ‘strict observance of international law’ has not led the Courts to apply the rules of an international treaty to the EU directly if it is not a party.381 However, in terms of a substantive legality according to the CFR, international customary law and the ECHR, Article 21 TEU and its explicit obligations to protect and promote human rights globally provide additional grounds for a review of the substantive legality. The obligations to respect as well as to promote impose obligations of conduct as well as of result on the EU foreign policy maker as shown in Sect. 2.4.2. When it comes to the obligations to promote, one has to take note that the Court has been rather reluctant to investigate whether a measure actually contributes to the objective the policy makers want to achieve. In the context of a choice of legal base Case C-366/10 Air Transport Association of America, ECLI:EU:C:2011:864, Judgment of 21 December 2011. 377 Ibid., para 101, 102. 378 C-162/96, Racke, ECLI:EU:C:1998:293, Judgment of 16 June 1998, paras 24, 45–46; Case C-386/08, Brita, ECLI:EU:C:2010:91, Judgment of 25 February 2010, paras 41–44. 379 Case C-366/10, Air Transport Association of America (ATAA), ECLI:EU:C:2011:864, Judgment of 21 December 2011, para. 61. 380 Case C-308/06, Intertanko, ECLI:EU:C:2008:312, Judgment of 3 June 2008, paras 44, 45. 381 Case C-366/10, Air Transport Association of America (ATAA), ECLI:EU:C:2011:864, Judgment of 21 December 2011, paras 57–63, 72. 376

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dispute, the ECJ did not engage into any deeper analysis of whether there is evidence that a measure in fact contributes to the objective pursued. The policy maker seems to have a wide margin of discretion in this regard. In Opinion 2/15 as discussed and criticized above, the Court relied in essence on the text of the agreement.382 In Philippines agreement, the Court went one step further and compared the text of the agreement to the European Consensus on Development as the overarching strategic policy document.383 This approach adds to coherence, but ultimately also leaves the determination of what contributes to development to the political institutions. The extent to which the conjunction of the human rights objectives with other constitutional principles makes the former judicially reviewable is extensively discussed in Part III by drawing analogies from the case-law on other procedural and substantive fundamental principles and objectives of EU law. Further case-law that is concerned with the impact of Article 21 TEU on the material legality of an extraterritorial EU measure is rare. In terms of Article 21 TEU functioning as a threshold for substantive legality, the restrictive measures cases give some insight. In these cases, the Court applied what may be termed an ‘objective-friendly’ interpretation in order to ensure the compliance of the underlying act with the general objectives of Article 21 TEU.384 The case of Yanukovych, the former president of Ukraine, is a pertinent example, because the claimant directly based his claims on Article 21 TEU as a material threshold for legality. Precisely, he claimed that the Council Decision to freeze funds is contrary to Art. 21 TEU, because the objectives invoked by the Council, namely consolidating the rule of law and respect for human rights in Ukraine, are unconnected to the alleged misappropriation of Ukrainian State funds and their illegal transfer outside Ukraine, which he was accused of.385 The Court examines whether the criterion in the underlying regulation for listing is ‘compatible with objectives of CFSP and proportionate in light of the general objectives’ including the human rights objective.386 However, since the restrictive measure was adopted ‘solely with the objective of consolidating and supporting the rule of law in Ukraine’, the Court declares that it can only review the listing criterion in light of the rule of law.387 The Court finds that only when interpreting the listing criterion of ‘misappropriation of public funds’ as meaning See, Sect. 2.3.1. C-377/12, Commission v Council (Philippines Agreement), ECLI:EU:C:2014:1903, Judgment of 11 June 2014, paras 49–55. 384 In NIOC also the general objective of rule of law was conceived as a threshold for legality of a restrictive measure criterion, Case T-578/12, NIOC, ECLI:EU:T:2014:678, Judgment of 16 July 2014, para. 110; Case C-440/14 P, NIOC, ECLI:EU:C:2016:128, Judgment of 1 March 2016, paras 68, 77–78; In Kala Naft, Advocate General Bot pointed out that the exclusion of effective remedy would be contrary to fundamental rights which the EU is required to respect according to Article 21, Case C-348/12 P, Opinion of Advocate General Bot, Council v Manufacturing Support & Procurement Kala Naft, ECLI:EU:C:2013:776, 7 November 2013, para. 71. 385 Case T-346/14, Yanukovych v Council, ECLI:EU:T:2016:497, Judgment of 15 September 2016, para. 88. 386 Ibid., para. 88. 387 Ibid., paras 93–94.

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offences of a certain degree, namely those that are liable to undermine the legal and institutional foundations of Ukraine, it is compatible with and proportionate to the objective of the rule of law.388 It then continues in assessing the facts against the ‘objective-friendly’ interpretation.389 The Court thus does not review the legal act in light of all the objectives but only in light of those the EU decides to pursue.390 As a side note, the Court reiterates settled case law stating that ‘review, in principle full review, of the lawfulness of European Union acts in the light of fundamental rights’ does not unduly encroach upon the discretion of the foreign policy makers.391 Hence, infringement of fundamental rights remains independently of the objective pursued a reason for illegality. This case-law in which the Court found the need to interpret the measure in question in an ‘objective friendly’ way and applies a proportionality test, support that the Article 21 TEU—objectives indeed function as a threshold for substantive legality. However, this objective-friendly interpretation has not been applied outside restrictive measure cases. In Mugraby, to give a concrete example were this could have been possible, the Court did not engage into any discussion as to whether the human rights clause should be interpreted more restrictively in light of the human rights objective.392 As said above, the human rights clause in question did not entail any obligation for the EU to activate it but rather preserved a right to do so,393 which led to exclusion of direct applicability.394 The Court did not attempt to interpret the human rights clause more restrictively in order to ensure compliance with the human rights objective. Further, Article 21 TEU imposes procedural obligations of assessment, which provide an additional ground for review. The only case in point is Polisario, as already discussed, in which the General Court reiterated a wide discretion in the fields of economic relations and with regards to Article 21 and 3(5).395 However, the absence of a fundamental rights assessment amounted to a manifest error of assessment and the illegality of the act. In sum, the human rights objective will not expand the substantive scope beyond the human rights obligations anyway imposed on the EU. However, Article 21 TEU Ibid., paras 99–101. The Court applies what could be called a reverse-Bosphorus logic, meaning that an encroachment of an objective must also be proportionate, see C-84/95, Bosphorus, EU:C:1996:312, Judgment of 30 July 1996, para. 26 in which the Court justified an interference into fundamental rights by the proportionate pursuance of a general objective. 390 See also Sect. 2.4.2. 391 Case T-346/14, Yanukovych v Council, ECLI:EU:T:2016:497, Judgment of 15 September 2016, para. 100. 392 The General Court’s argumentation was upheld on appeal, although one should point to the weak factual basis relied on by the applicant, Case C-581/11 P, Mugraby v Council, ECLI:EU:C:2012:466, Judgment of 12 July 2012, paras 68, 81. 393 Ibid., para. 70. 394 T-292/09, Mugraby v Council, ECLI:EU:T:2011:418, Judgment of 6 September 2011, para. 60. 395 T-512/12, Front Polisario v Council, ECLI:EU:T:2015:953, Judgment of 10 December 2015, para. 166. 388 389

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should lead the Court to review whether the foreign policy maker complied with certain obligations of conduct and result. Initial approaches can be found in the case law. Part III discussed in detail and by way of example the obligations imposed on the investment policy maker and the corresponding judicial implications.

2.5.3 Conclusion EU fundamental rights clearly constitute a yardstick of legality of an EU act with external effects. Article 21 TEU clarifies the applicability of human rights to EU external policy making and the way they should be incorporated. This is first in context of the conditions under which a decision was made (Polisario) and second in relation to the substantive compliance of the outcome of such a decision (restrictive measures-cases). With regards to both levels, the foreign policy maker enjoys a wide margin of discretion, particularly in context of economic relations and complex assessment. However, the notions of ‘wide margins’ and ‘manifest error’ as applied in previous case-law leaves ample room for interpretation and the EU human rights framework imposes clear limits upon this discretion. On the substantive level, Article 21 objectives may require a restrictive interpretation of the legal act in questions, yet—it seems—only in light of the objective that is meant to be pursued. In any case, however, an in principle full review of fundamental rights compliance may be applicable. That means that clear boundaries can be drawn, for example, according to the ‘essence of rights’ doctrine. On a procedural level, the EU human rights framework may entail specific duties depending on the specific context as will be demonstrated in Part III. Certain procedural duties always apply when fundamental rights are at stake such as transparent proportionality balancing. The Court may clearly review whether a balancing exercise was conducted properly without encroaching on the policy maker’s discretion. The deference of the judicial review could be made conditional upon the rigour of the fundamental rights assessment (e.g. a proper balancing, public participation) during the decision-making processes.396 Such a review could then also focus on what general governance structures are in place and whether they in general capable of ensuring an inclusive protection of rights, including those that are that are easily disregarded. Although, Article 21 TEU certainly does not confer any individual rights, if EU acts are adopted in order to pursue the human rights objective, a restrictive interpretation might apply. Individual rights and entitlements can then stem from secondary legislation, international agreements or even soft law that is put in place with the intention to guarantee human rights protection. In certain contexts, Article 21 TEU See, also Dawson who argues for such a ‘Process-Oriented’ Approach and concludes that therefore a strict review should apply for legislation enacted by the Commission as a body with weak political accountability and limited responsiveness to EU citizens, Dawson (2017), pp. 80–82.

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may entail specific individual entitlements.397 Such parameters that follow from Article 21 TEU are proposed in Part III of the book. These suggestions will build on other structural principles that guide the decision-making processes and that have previously been applied to judicial review of discretion. The procedures proposed in Part III are amenable to judicial oversight and should be. In theory, the incompatibility with the general objectives can constitute a ground for a legal challenge by an individual. Even in cases, in which individual challenges are excluded, it is not unlikely that the European Parliament (EP) as a privileged claimant decides to intervene. In the context of investment agreement making, likely scenarios that could lead to an illegality based on Article 21 TEU are a lack of a comprehensive assessment of the human rights at stake, or a lack of transparency or incomplete participation of civil society within such assessments. The EP has already expressed its willingness to patrol for the compliance of international agreements with Article 21 TEU.398 Further, the Ombudsman has been proven to be an effective complaint-mechanism for individuals. The standing requirements for the Ombudsman are considerably less strict and her mandate also covers the legality of administrative acts. Although, only EU-citizens or legal persons with registered office within the EU are eligible for submitting claims, NGOs have in the past drawn the attention to human rights violations occurring extraterritorial, at times in transnational cooperation with civil society organisation of those third states. In addition, the Ombudsman can initiate an own-initiative enquiry (Article 228(1) TFEU) which has been a driving force behind increasing transparency of the TTIP negotiation.399 However, the Ombudsman lacks an enforcement mechanism and her decisions have also been ignored. The EP which receives her report may decide to legally act when infringements are brought to its attention. Further, other mechanisms that are discussed in Part III like monitoring mechanisms for the trade and sustainable development chapter of trade agreements may complement the lacking legal protection by the CJEU or could function as problem-solving mechanisms.

2.6 Conclusion This chapter demonstrated that the human rights objective of external action of Article 21 and 3(5) TEU expands the ‘can’ and the ‘must’ with respect to the relevance of human rights for EU external action. It expands the ‘can’ in that the See also Vianello (2016), pp. 190, 191, on entitlements of participation. To give an example, the EP announced that it is willing to commence Art. 263 and Art. 265 TFEU proceedings if the EU’s development policy does not respect Art. 21 TEU, see European Parliament resolution of 18 May 2010 on the EU Policy Coherence for Development and the ‘Official Development Assistance plus’ concept (2009/2218(INI)), para. 40. 399 EU Ombudsman, Transparency and public participation in relation to the Transatlantic Trade and Investment Partnership (‘TTIP’) negotiations, OI/10/2014/RA, 6 January 2015; Keating D (2015) EU ombudsman calls for greater TTIP transparency. In: POLITICO. http://www.politico. eu/article/eu-ombudsman-calls-for-greater-ttip-transparency/. Accessed 04 January 2019. 397 398

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transversal nature of the human rights objective, as a general objective overarching all fields of external action, liberates EU policies that pursue human rights protection from the fragmentation of external policies, as it was the case pre-Lisbon. Although the human rights objective does not provide for a substantive competence and hence a legal base, its all-encompassing status makes clear that it is relevant for all fields of EU external polices and shall be pursued with all instruments the EU has at its disposal including trade and investment policies. The threshold for justifying the integration of human rights into trade and investment policies should be much lower. In fact, as an obligation to integrate exists, the absence of a proper integration will require justification. In that regard, the human rights objective also clarifies the ‘must’ in that the clear linkage of human rights protection to external policies emphasizes the EU’s commitment to human rights responsibility beyond territorial confines and thereby continues the concept of fundamental rights applicability that is endorsed by the Charter. It requires the EU policy makers to remain perceptive for international trends in human rights law that are increasingly accepting clear legal frameworks for extraterritorial human rights obligations and methods to comply with those. The fact that a violation occurs extraterritorially is neither from the perspective of international human rights law nor from the perspective of EU law a reason to exclude legal obligations from the outset. The human rights objective can be conceived as an instruction for the foreign policy maker to incorporate the obligation to comply with human rights as well as the obligation to promote human rights during the development as well as during the implementation of external policies. The substantive content is determined by the applicable human rights and fundamental rights norms. They also inform the methods for incorporation next to other constitutional principle of EU law that have prominently been employed by the Court to develop and structure EU law and to control the discretion enjoyed by the policy makers. The EU human rights framework provides the legal ground for developing human rights strategies that are able to more effectively and adequately take into account the global reach of EU legislation and its impact on the human rights situations of individuals far from home without encroaching on the foreign policy makers discretion and while empowering the free choice of third country nationals instead of imposing compliance with EU standards on governments.

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Chapter 3

The International Investment Competence of the EU

Abstract The first chapter explained how human rights next to other substantive and organizational principles and objectives should inform the making and implementation of EU foreign policies. This chapter is concerned with the role that the EU can actually play in shaping the international investment regime. It delineates the regulatory reach of the EU with regards to international investment relations in order to subsequently determine which areas should be governed by the EU human rights framework. This chapter first explains the importance of this thorough analysis, that is highlighting the flexibility of current definitions and making the argument that the human rights framework goes beyond the confines of EU exclusive competence (Sect. 3.1). In order to outline the newly gained and existing powers of the EU in view of the powers needed to cover the traditional practice of international investment relations, this chapter elucidates briefly the traditional scope of international investment regulation (Sect. 3.2). As a next step, it analyses to what extent these powers are covered by exclusive competence of CCP, implied external competences and other expressed Treaty competences or remain under the competence of the Member States (Sects. 3.3–3.8). Ever since the inclusion of foreign direct investment (FDI) into CCP, the scope of the EU competence over investment regulation has been highly debated amongst scholars and between the Commission, the EP and the Member States. Each section therefore outlines the answers given by the Court in the landmark decision Opinion 2/15 in comparison to the diverging opinions in the literature. In a last step, it is explored what different policy options remain if one aims for covering the state of the art investment regulation (Sect. 3.8), while discussing what the different policy options mean for the application of the human rights framework (Sect. 3.9).

© Springer Nature Switzerland AG 2019 V. Kube, EU Human Rights, International Investment Law and Participation, Interdisciplinary Studies in Human Rights 4, https://doi.org/10.1007/978-3-030-20607-9_3

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3.1 Introduction This chapter pursues two aims. One is to discuss the scope of the EU’s exclusive competence and to explain how the EU human rights framework still influences the remaining parts. As a side aim, the detailed discussion of the current scope of the CCP and its development serves to shed light on those areas in which the definitions of CCP remain to some extent flexible. This conclusion also highlights the importance of the constraining effect of the human rights framework. Therefore, the conclusions drawn in this chapter can apply to future developments. As a primary aim, this chapter deals with the question to what extent the exclusive CCP competence covers the conventional scope of international investment regulation. In relation to all aspects covered by EU exclusive competence, the EU human rights framework as laid out in Chap. 2 applies directly. However, in the big picture, the precise delineation of exclusive EU competence might prove to be less relevant as will become apparent when discussing the policy options resulting from the fact that some conventional regulatory aspects fall under shared or exclusive Member States competence. In this context, this chapter makes the argument that both the legal effects of human rights as a foreign policy objective and principle in fact go beyond the confines of EU exclusive competence. This is the case first because human rights form part of the fundamental core of EU law and by virtue of being fundamental reach out to Member State exclusive competence; second, because of the constraints on Member State action flowing from the duty of sincere corporation that is geared towards safeguarding Union objectives. As consequences of both, the substantive instructions for formulating an investment policy will be largely determined by EU law including its human rights framework. As the second aim, this chapter, while discussing the investment powers of the EU, highlights those key parts of the definition of the CCP as developed by the Court that leave room for interpretation and thus have been and are used to adjust the scope of the CCP according to current developments of international economic regulation. In light of these flexible boundaries of the CCP, the importance for this competence to be anchored in fundamental rights as a condition for power conferral and as a constraint for the exercise of exclusive competence becomes clearer. These key aspects are the distinction between ancillary and predominant aspects, the test for the specific link to trade and the definition of trade itself, which are foreshadowed here. As discussed in Chap. 2, the Court constructs its discussion of the individual components of investment regulation and their relation to CCP according to whether they have specific link to trade.1 In continuation of settled case law, such a specific link exists when the commitments established by the agreement ‘are intended to promote, facilitate or govern […] trade and have direct and immediate

Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 37.

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effects on it.’2 In contrast, only having implications for trade with one or more third States is not enough.3 Different to the previous case-law, the Court in Opinion 2/15 ultimately tests every component (and formally also every provision thereof) for its specific link on trade individually.4 Previously, the CJEU when adjudicating on the proper choice of legal base for ‘multi-purpose’ legal acts, it distinguished between predominant and ancillary components, whereas only the first determined the correct legal base according to the aim and content test, even if the latter component would—seen in isolation—fall under a distinct competence.5 For a component to be deemed being ancillary to the predominant purpose such component must not constitute an ‘extensive’ obligation.6 In cases, in which a distinction between ancillary and predominant is not obvious, this condition provides the Court with considerable room for interpretation. Opinion 2/15 brought to the fore that in contrast to AG Sharpston, the Court is less careful in establishing this distinction and at times omits a discussion all together. Further, it seems that in Opinion 2/15 an intention of the treaty makers to govern trade is deemed sufficient for establishing the specific link. Thereby, the Court reduces its aim and content test to only reviewing the aim of a measure instead of engaging into any deeper assessment of whether the measure in question is in fact having the intended effect on trade.7 Such intention is either taken from the context, i.e. other provisions or the preamble, or is only assumed. Neither does the Court conduct such an assessment nor does it require the policy makers to have done so in order to substantiate their decisions. Another factor that adds to this ample room for interpretation is the use of the term ‘trade’ itself, which has not been defined consistently. In general, the Court applies a dynamic and broad interpretation (subsuming every field that is needed to keep up with contemporary economic regulation under trade).8 Precisely because of this ample room for interpretation in a field that was constantly being shaped by oscillating case-law and revised CCP provisions, it is Ibid., para. 38. Ibid., para. 36. 4 Ibid., para. 37. 5 Case C-281/01, Commission v Council (Energy Star Agreement), ECLI:EU:C:2002:761, Judgment of 12 December 2002, para. 44; C-137/12, Opinion of Advocate General Kokott, Philippines Agreement, ECLI:EU:C:2013:441, Judgment of 27 June 2013, para. 82; Case C-137/12, Commission v Council (Conditional Access), ECLI:EU:C:2013:675, Judgment of 22 October 2013, para. 71; C-377/12, Commission v Council (Philippines Agreement), ECLI:EU:C:2014:1903, Judgment of 11 June 2014, para. 34. 6 C-377/12, Commission v Council (Philippines Agreement), ECLI:EU:C:2014:1903, Judgment of 11 June 2014, para. 39. 7 See David Kleimann, who argues that the Court’s requirement for a choice of legal base having to rest on ‘objective factors amenable to judicial review’ may demand to validate the specific link to trade by empirical evidence, e.g. through an economics-based analysis. Kleimann (2017), p. 8. 8 Opinion 1/78, Natural Rubber, ECLI:EU:C:1979:224, 4 October 1979, para. 44; Opinion 1/94, WTO Agreement, ECLI:EU:C:1994:384, 15 November 1994, para. 41. 2 3

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important to nevertheless review the discussion in the literature prior to this decision in order to contrast Opinion 2/15 to alternative readings.9 It remains important to note, that this book looks at international treaties as the basic instrument of international investment regulation, while acknowledging that internal measures may be effective additional means for influencing international investment law.

3.2 T he Traditional Scope of International Investment Regulation Chapter 4 discusses the emergence of international investment law as well as the regulatory mechanisms traditionally deemed part of it in greater detail in order to demonstrate the regime’s ignorance towards human rights. Therefore, this section only briefly anticipates the traditional scope of international investment law. It is worth noting that speaking of international investment law as a field or a regime of law, is questionable in and of itself. In fact, the substantive norms are not based on any multilateral treaty; quite to the contrary, any attempt to agree on the regulation of foreign investment on an international level has so far failed.10 In fact, international investment protection is regulated by a patchwork of bilateral investment treaties (BITs), investment chapters in other international agreements, corresponding arbitral awards, domestic investment laws and multilateral dispute resolution and enforcement agreements. However, as it is explained and critiqued in Chap. 4, a considerable substantive convergence amongst the thousands of BITs and international investment agreements (IIAs) can be detected or as some critics say has been constructed.11 At least before recently public concerns and civil society contestation prompted some actors into reconsidering conventional approaches, the main bulk of IIAs included essentially similar standards and dispute resolution mechanisms, which this chapter assumes as a basis for the discussion of the EU competence. This traditional scope of the investment regulation can be divided into two categories, namely into the regulation of admission (market access) and post-admission

9 For an overview and a categorization of the different opinions in the literature, see Shan and Zhang (2011), pp. 1060–1065. 10 On OECD level, negotiations on a proposed multilateral agreement on investment (MAI) started in 1995 with the intention to establish a multilateral framework for international investment liberalisation and dispute settlement procedures. The negotiations were confronted with widespread opposition by developing countries and fierce campaigning by civil society. The negotiations were discontinued with no intention to be presumed in April 1998, see generally Witherell (1995). Similarly, at WTO level any attempt to establish a comprehensive body of rules on investment was so far unsuccessful. As of yet, WTO rules only cover investment issues to a limited extent in relation to services (in the GATS) and in relation to performance requirements (in the TRIMs Agreement). 11 See, the discussion in Sect. 4.2.

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protection. These key aspects include market access guarantees (including prohibition of performance requirements), the guarantee of national treatment (i.e. non- discrimination compared to nationals), most-favored nation treatment (i.e. non-discrimination compared to the most preferential treatment granted to investors of third countries), fair and equitable treatment (FET), full protection and security, protection for the repatriation of profits and free transfer of payments and protection and compensation guarantees for expropriation. Since the language used in such provisions is usually rather vague and broad, the specific scope of such obligations depends largely on their clarification in subsequence arbitration or in interpretation declarations issued by the treaty parties. The provisions are enforced through state- to-state and investor-to-state dispute settlement (ISDS) and multilateral execution treaties. IIAs commonly either refer in part or in whole to an established arbitration system such as the ICSID,12 multilateral system of rules such as UNCITRAL13 or provide the conditions according to which ad hoc arbitral tribunals ought to be constituted. Of the more than 3300 IIAs currently in force, more than 1500 were concluded by EU Member States and third states,14 usually including the above mentioned key provisions. The scope of the EU’s competence over these key regulatory aspects will thus be decisive when determining whether the EU will be able to act as the sole negotiator of future EU investment treaties without lagging behind the current breadth of Member States’ BITs and the traditional practice of the international investment scene.

3.3 The Common Commercial Policy: Exclusive Competence The Treaty of Lisbon inserted FDI into the CCP (Art. 207 TFEU) and explicitly declared all matters of CCP as an exclusive competence of the EU (Art. 3 (1) lit. e, 2 (1) TFEU). However, the exact scope of the newly gained EU investment powers was highly controversial amongst the EU and its Member States as well as in scholarly literature.15 The Commission and the Member States particularly have quarreled about two points: Firstly, whether EU’s competence includes portfolio investments and secondly, whether the competence only covers the admission phase of FDI (establishment) or also extends to the operation phase (post-establishment). The debate about the inclusion of ISDS was rather located at the level of

International Centre for Settlement of Investment Disputes, operating under the World Bank and established in 1965. 13 United Nation Commission on International Trade Law endorses conventions and model laws on arbitration. 14 UNCTAD, World Investment Report 2017, UNCTAD/WIR/2017, June 2017, p. 111. 15 The different positions within the literature will be referenced in the following corresponding to the presentation of such positions. 12

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compatibility (especially in relation with rule of law, democratic legitimacy and the autonomy of the EU legal order).

3.3.1 F oreign Direct Investment, Portfolio and Other Forms of Investment The question whether an ostensibly clear wording can be understood to include also portfolio is due to the fact that such interpretation would be in line with the conventional scope of IIAs and the majority of current Member States’ BITs. The EU can only fully assume the previous Member State action in the field of international investment and substitute the current BITs, if it holds the competence to cover the traditional scope including direct and portfolio investments. Consequently, the EU approach started with including, what has been termed, an open asset-based definition, into all its negotiation proposals and newly concluded agreements.16 As seen in CETA or the FTA Singapore, the latter underlying Opinion 2/15, these broad definitions describe investment as ‘every kind of asset’ accompanied by a list of examples such as tangible and intangible rights, claims to money, intellectual property or contractual rights.17 The precise meaning is discussed in detail in Chap. 4 as well as the possible variations. Articles 206, 207 TFEU do not provide for a definition of the term and neither do previous EU trade agreements that included investment provisions.18 However, the term ‘direct investment’ is used in Article 64 TFEU on the free movement of capital. Article 64 (1) TFEU exempts foreign (i.e. non-EU) direct investment from the prohibition of restrictions established under Article 63 TFEU and distinguishes direct investment from free movement of capital protected under Article 63 TFEU. Direct investment is further an established term used in traditional international investment instruments such as the IMF/OECD Glossary of Foreign Investment

Bischoff and Happ (2015), pp. 500–501. See, e.g. FTA Singapore, Article 9.1; CETA, Article 10.3. Note that the CETA definition could possibly also be interpreted as excluding portfolio. The CETA definition requires, for instance, ‘a certain duration’. One could therefore argue that the requirement of a certain duration is meant to reflect a special commitment to a project, which would then exclude mere portfolio investment. However, apart from that criterion, the definition is very broad and an expressed exclusion is not mentioned, which makes it more convincing to assume portfolio is meant to be part thereof. 18 Dimopoulos (2011), p. 46. For an overview of the different scope of investment provisions included in EU Free Trade Agreements, see S Szepesi, Comparing EU free trade agreements: Investment, InBrief 6D (2004), Maastricht: ECDPM. 16 17

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Terms19 and the UNCTAD.20 According to this terminology, FDI, in its narrow sense, implies direct management control over a third state’s domestic company by owing a sufficient amount of the shares (which—according to the OECD and IMF— must be equivalent to a voting power of at least 10%).21 Foreign direct investors pursue to acquire new means of production by purchasing physical assets (e.g. equipment or real estate), setting up subsidiaries or associate companies, participating in joint ventures by mergers and acquisitions, ideally accompanied by a transfer of know-how, technology, managerial and organizational skills. It is therefore understood as active involvement with a significant degree of influence aiming for a long-term relationship. Portfolio, in comparison, can be described as passive involvement. It is limited to participation in the stock market of another economy without aiming for managerial control over a certain company. The portfolio investor’s interest lies primarily in gaining financial profit and not in creating of any long-term relationship. When inferring from legal sources outside the EU legal order, the requirement of autonomous interpretation of EU law has to be born in mind.22 The principle of autonomy of EU Law requires a distinct and independent interpretation of EU primary law. Consequently, the meaning of the term ‘investment’ in current Member States’ BITs or under international law cannot be decisive. However, the ECJ increasingly accepts the influence of international norms on EU legal terms.23 On those grounds, Dimopoulos claims that the provision of CCP should be interpreted in light of international law.24 Moreover, the approach in Daiichi Sankyo could be read as supporting an international orientation. While interpreting the new scope of ‘commercial aspects of intellectual property’ under Art. 207 TFEU, the Court acknowledged the importance of the fact that literally the same term is used in the TRIPS agreement25 and that therefore a close link cannot be denied.26 One should Glossary of Foreign Direct Investment Terms and Definitions (2008), as part of the 4th edition of the OECD Benchmark Definition of Foreign Direct Investment and fully compatible with the 6th edition of the IMF, Balance of Payments and International Investment Positions Manual, available at http://www.oecd.org/daf/inv/investmentfordevelopment/2487495.pdf. Accessed 14 March 2019. 20 The UNCTAD, World Investment Report 2012, Methodological Note, at 3, also refers to the OECD/IMF definition, available at http://unctad.org/en/PublicationChapters/ WIR2012MethodologicalNote_en.pdf. Accessed 14 March 2019. 21 Ibid. 22 As first established in Case C-26/62, Van Gend en Loos, ECLI:EU:C:1963:1, Judgment of 1963; Case 6/64, Costa v. ENEL, ECLI:EU:C:1964:66, Judgment of 1964. 23 See, e.g. Case C-286/90, Anklagemyndigheden v Poulsen and Diva Navigation, ECLI:EU:C:1992:453, Judgment of 1992; Opinion 1/75, Local Cost Standard, ECLI:EU:C:1975:145, 11 November 1975, para. 3; For an overview of this development, see Wessels and Blockmans (2014), pp. 1–9. 24 Dimopoulos (2011), p. 42. 25 The TRIPs Agreement is Annex 1C of the Marrakesh Agreement Establishing the World Trade Organization, signed in Marrakesh, Morocco on 15 April 1994. 26 C-414/11, Daiichi Sankyo, EU:C:2013:520, Judgment of 18 July 2013, para. 55. 19

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note, however, that the IMF/OECD glossary is not legally binding for the EU, in contrast to the TRIPS. The ECJ already adopted an essentially similar interpretation to the IMF/OECD Glossary in the context of free movement of capital: […]‘direct’ investments, namely investments in the form of participation in an undertaking through the holding of shares which confers the possibility of effectively participating in its management and control, and ‘portfolio’ investments, namely investments in the form of the acquisition of shares on the capital market solely with the intention of making a financial investment without any intention to influence the management and control of the undertaking.27

The Court further applied the 10% benchmark as in the OECD/IMF definition.28 The ordinary meaning of foreign direct investment as used in EU Law thus overlaps with its meaning in international law and clearly excludes portfolio and other kinds of investments not aiming for a certain degree of control. In her avis on Opinion 2/15, AG Sharpston compares the OECD definition and the EU definitions applied in the case-law as mentioned above at length.29 The Court interprets the term used in Article 207 TFEU solely relying on its previous case-law on intra-EU direct investment and concluded that any other form of investment falls outside the scope of CCP.30 The Court adds that the participation—by a natural or legal person of a third State in the European Union and vice versa—in the management or control of a company carrying out an economic activity has direct effect on trade.31 Without further explanation, the Court concludes that without such participation, no such specific link to trade exists. The EP has argued that portfolio will only be incidental to the main purpose of direct investment protection and thus—in the context of this agreement—be covered by CCP.32 This line of argument further shows the limits of making a distinction between ancillary and predominant objectives in international agreements. In fact, the inclusion of portfolio might be ancillary in each agreement, but in light of the likely proliferation of such agreements, the CCP maker would effectively completely regulate portfolio. In summary, it is most convincing to conclude that other forms of investment that remain under the required degree of control fall outside the scope of the EU’s exclusive competence. The definition as used in CETA and the FTA with Singapore would thus only partly be covered by CCP. However, these other aspects may be covered by other fields of exclusive competence expressively or by virtue of implied powers (Art. 3(2), 216 TFEU) as it is analyzed below. Case C-171/08, Commission v Portugal, ECLI:EU:C:2010:412, Judgment of 8 July 2010, para. 49. 28 C-436/08, Haribo, ECLI:EU:C:2011:61, Judgment of 10 February 2011, para. 137. 29 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, paras 314–322. 30 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, paras 80, 86. 31 Ibid., para. 84. 32 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 297. 27

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3.3.2 Market Access and Post Admission Protection A further controversial issue has been whether the scope of direct investment powers only covers the regulation of admission or extends to the protection and treatment of the investment after being established in the other state or the EU. Protection provisions are commonly the core of FDI agreements. Similarly, in many of the EU agreements under negotiation as in the FTA with Singapore, investment protection is the main or even the only purpose of the investment chapters.33 In order to determine whether the new CCP covers only admission or also post- establishment protection, arguments based on analysis of the Treaties’ texts, on previous case-law and on the negotiation history have been deployed, which are rehearsed, commented on and compared to Opinion 2/15 in the following. Some scholars have inferred from the specific objective of CCP, namely trade liberalization, and the traditional focus on ‘commerce’, that the new powers over investment only cover measures targeting obstacles to admission of foreign investments as only this would sufficiently relate to trade.34 August Reinisch additionally notes, that a verbatim interpretation of Art. 206 TFEU substantiates this view.35 The article states as the objective of CCP ‘…the progressive abolition of restrictions on international trade and on foreign direct investment’. According to his reading, abolition of restrictions also refers to FDI.36 The wording of Art. 207 TFEU, on the contrary, allows for both conclusions as it omits the reference to ‘progressive abolition’.37 He further refers to Opinion 1/9438 in order to support a restrictive interpretation of FDI.39 In Opinion 1/94, the Court was asked to assess amongst others to what extent the CCP grants the EU the exclusive competence to accede to the General Agreement on Trade in Services (GATS) and greement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). In this context, the Court limited the CCP competence to cross-frontier supply of services and excluded other modes of supply, like commercial presence, from the CCP, stating that only the former is trade-equivalent.40 Following this line of reasoning, it is argued, that the required link to trade is limited to matters closely linked to the elimination of border measures.41 This comparison has its limitations because the then Article 113 EC Treaty was phrased differently. Trade in service was not explicitly included. The trade- See, the FTA with Singapore, Section A. Leczykiewicz (2005), p. 1678; Bischoff (2011), pp. 1539–1540; Krajewski (2012), p. 303; Reinisch (2013), p. 181; Arguing the contrary, Karl (2004), pp. 421–422; Marc Bungenberg (2010), p. 144; Dimopoulos (2011), pp. 111–112. 35 Reinisch (2013), p. 181. 36 Ibid., pp. 181–182. 37 It can be read as ‘the commercial aspects of […] foreign direct investment’ or as ‘the commercial aspects of intellectual property [and] foreign direct investment’, See, ibid., p. 181. 38 Opinion 1/94, WTO Agreement, ECLI:EU:C:1994:384, 15 November 1994. 39 Reinisch (2013), p. 181. 40 Opinion 1/94, WTO Agreement, ECLI:EU:C:1994:384, 15 November 1994, para. 45. 41 Reinisch (2013), p. 181. 33 34

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equivalence therefore had to be established in order to justify the CCP’s expansion to cover trade in services. In the context of trade in goods, the Court was not reluctant to include behind the border measures (such as those falling under the WTO Agreement on Technical Barriers to Trade) under CCP.42 This case therefor does not speak against understanding behind the border measures as falling under Article 207 TFEU, especially in relations to those fields that are explicitly enumerated such as FDI. Further, the ECJ also in Opinion 1/94 reiterated the need for openness towards international trends in trade.43 Moreover, in Daiichi Sankyo, the ECJ states that its previous definitions of CCP as derived from the former Art. 133 EC and its predecessor Art 113 EC are not transferrable to the new Art. 207 TFEU.44 Still, the Court adheres to the old principles of establishing a special link to trade as well as openness towards international developments.45 It is noteworthy, however, that in Daiichi Sankyo the requirement of such a specific link was sufficed because the predominant aim of the international agreement—in this case the TRIPS agreement—was related to international trade. Furthermore, the ECJ emphasizes that the term used in Art. 207 TFEU (‘commercial aspects of intellectual property’) literally reflects the term used in the TRIPS Agreement and concludes that this fact shows the intention to enable the new CCP to cover the same. Likewise, in Conditional Access, the ECJ did not depart from its focus on the primary objective of the international agreement in order to find a specific link to trade. It stated that a wide range of regulations46 that individually considered have no link to traditional cross-border measures do not alter the main purpose of the agreement. For the agreement to be linked to trade, it was sufficient for it to pursue the facilitation of the supply of services beyond EU territory.47 In the Opinion 2/15 underlying FTA Singapore, protection provisions are clearly dominant. AG Sharpston therefore concluded that an analogy to Conditional Access would only work if the other provisions are ‘extremely limited’ in terms of scope and quantity.48 In contrast to AG Sharpston and to the arguments brought forward by the Commission,49 the ECJ does not enter into this discussion but reviews each individual component for its specific link to trade.50 The Court then finds a specific link to trade for every protection standard. However, it only broadly summarizes that the protection provisions ‘contribute to the legal certainty of investors.’ Therefore, ‘[t] Opinion 1/94, WTO Agreement, ECLI:EU:C:1994:384, 15 November 1994, paras 28–33. Ibid., para. 41; See, also Bischoff (2011), p. 1541. 44 C-414/11, Daiichi Sankyo, EU:C:2013:520, Judgment of 18 July 2013, para 48. 45 Ibid. para 52, 53. 46 In Case C-137/12 the envisioned convention would comprise among others seizure and confiscation measures with regards to the use of illicit devices that give unlawful access to services. 47 Case C-137/12, Commission v Council (Conditional Access), ECLI:EU:C:2013:675, Judgment of 22 October 2013, paras 64, 65. 48 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 498. 49 Ibid., para. 496. 50 The ECJ only deems the institutional provisions as clearly ancillary, see Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, paras 257–277. 42 43

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he establishment of such a legal framework is intended to promote, facilitate and govern trade between the [EU and Singapore]’.51 Additionally, those provisions that ‘concern the treatment of the participation of entrepreneurs of one Party in the management or control of companies carrying out economic activities in the territory of the other Party’ have direct and immediate effects on that trade.52 According to the Court, all of the protection provisions included in the respective agreement (i.e. national treatment, FET and protection and security, compensation for losses in a state of emergency, protection against expropriation, repatriation of profits and recognition of subrogation) are covered by CCP. Further, it seems that the Court substantiates this conclusion by stressing that even in areas of exclusive Member States’ competence the Member States remain under an obligation to comply with principles of fundamental rights and non-discrimination.53 The Court therefore seems to apply a less strict distinction between ancillary and predominant aspects, but therefore a rather broad understanding of the ‘specific link to trade’, which may more adequately capture the breadth of current deep and comprehensive trade agreements. However, such approach certainly leaves considerable room for diverging interpretations. Indeed, the explanations by the Court accompanying each determination of a direct link are rather thin, which makes it difficult to draw an abstract standard to review for future assessments. Therefore, this section briefly summarizes the reasons employed by AG Sharpston and the previous literature. One hand, AG Sharpston inferred that FDI protection was partly already covered by trade in services and goods.54 More interestingly, as it explains the connection between investment and trade, she establishes the link to trade by a different reading of the negotiation history and on the basis of Opinion 1/94. As to the negotiation history, she points to the reasons brought forward by the Commission in support for the expansions which was to overcome the mismatch between the scope of CCP and the up-to-date trade agenda as investment flows are more and more substituting conventional trade.55 Referring to Opinion 1/94, AG Sharpston points out that the Court already then asserted that liberalization trade must extent to domestic instruments.56 On this basis she concludes that not including investment protection would render FDI more expensive and more burdensome and therefore has a direct and immediate effect on FDI flows.57 Ibid., para. 94. Ibid., para. 95. 53 Ibid., paras 107, 108. 54 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, paras 327, 362. 55 Approximately 80% of all trade is intra-firm trade, see UNCTAD, Global Value Chains and Development; Investment and Value Added Trade in the Global Economy, 2013, http://unctad.org/ en/publicationslibrary/diae2013d1_en.pdf. 56 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 332. 57 Ibid., paras 331, 336. 51 52

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In the literature, many narratives have been offered regards the negotiation history surrounding the inclusion of FDI as well as the reasons for the latter.58 Krajewski refers to the scarce discussion amongst the Member States’ delegates when confronted with the final proposals by the Praesidum that are identical with today’s Article 207 TFEU. He argues that a power shift calling into question the future of hundreds of BITs concluded by the Member States would have had unleashed much more vigorous discussions.59 Other scholars have explained the scarcity of discussion by a different priority setting in the final stage of negotiation or a lack of expertise and awareness on the side of the delegates.60 Other reconstructions of the emergence of the FDI competence point to an intensive discussion during the drafting of the Constitutional Treaty.61 This section will not rehearse this discussion in detail. It suffices to state that the diversity of interpretations shows the degree of speculation involved and that without a deeper inquiry into the history, these interpretations will not lead to a definite determination of the CCP’s scope. Further and as seen in Opinion 2/15, the ECJ puts little emphasis on the negotiation history.62 In addition, also according to the canon of international law interpretations, travaux préparatoires only serve a supplementary function (see, Art. 32 of the Vienna Convention of the Law of the Treaties). The majority of scholarly literature, the AG and the Court, although for different reasons, share an understanding of investment regulation within CCP that covers protection standards.63 The variety of reasons deployed however indicates a certain lack of clarity as to the justification. Nevertheless, the fact remains that global trade and investment regulation increasingly includes domestic measures and that regulation of investment became one of the major parts of international trade relations. The problem in the future will be to determine the limits to regulation of behind the border measures; especially in light of fundamental differences between the structures of domestic regulation imposed by IIAs and the structural balance inherent in the organization of the EU market including prohibition of restrictions, gradual harmonization and legitimate exceptions.64 In this context, it becomes already apparent that in light of the blurry boundaries of the CCP competence, that are being adjusted to the ever-changing scope of international economic regulation, while not stopping at the regulation of behind the border measures, the compliance with EU fundamental rights might also gain increased relevance as a means for preserving competence division. Further, this deep penetration

Reinisch (2013), p. 180; Dimopoulos (2011), p. 16; Basedow (2016). Krajewski (2012), p. 304; Bischoff (2011), p. 1540. 60 Basedow (2016), pp. 761–762. 61 Reinisch (2013), p. 180. 62 For an analysis of the relevance of historical interpretation in the ECJ case law, see Leisner (2007). 63 Karl (2004), pp. 421–422; Benyon (2010); Marc Bungenberg (2010), pp. 144–145; Kuijper (2010), p. 269; Dimopoulos (2011), pp. 23–25, 111–112; Ortino and Eeckhout (2012), p. 319. 64 For a comprehensive critique of this development, see Fernández-Pons et al. (2017). 58 59

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into domestic measure should be kept in mind when compared to the limits set for regulation necessary for countervailing negative impacts on human rights concerns.

3.3.3 Limitation on Grounds of Art. 345 TFEU Furthermore, the EU’s exclusive competence over the traditional scope of investor protection could be considerably limited by Art. 345 TFEU. Such tensions could specifically arise with regards to expropriation clauses that are a crucial part of investment protection.65 Art. 345 TFEU declares the national systems of property ownership as exempted from EU law and thus can be read as prohibiting any EU regulation from interfering with national property rights. The tensions may arise due to the fact that domestic property rights—especially in the field of intangible rights and with regards to public policy carve outs—differ considerably from the definition of investment and the scope of protection offered by the expropriation clauses.66 In Germany, for instance, property rights are not absolute but have to accommodate social interests (‘Eigentum verpflichtet’67). State acts that are in line with the boundaries inherent in such a domestic definition of property (such as the social interest carve out) will have to be justified against the much more restricted derogations foreseen in investment treaties that furthermore mainly depend on the subsequent interpretations of the rather vaguely termed conditions.68 First, it is important to note that Art. 207(6) TFEU makes it clear that the CCP provisions cannot override Art. 345 TFEU. However, the broad wording of Art. 345 TFEU does not give a clear answer as to the delineation of its scope and literature on that issue is rare.69 The Court nevertheless adopted a clear position by recurrently stressing that the establishment of a system of property rights, albeit being a Member State competence by virtue of Art. 345 TFEU, has to comply with the fundamental principles of EU Law.70 In the literature, the opinions are divided between a narrow and a broad reading of Art. 345 TFEU. According to the narrow reading, that the CJEU seems to endorse, Art. 345 TFEU only enforces neutrality on the side of EU law towards the allocation of property ownership of undertakings, meaning that EU Law must not encompass any obligations to privatize or n ationalize undertakings.71 The fundamental principles of EU law including n on-discrimination Arguing against the inclusion of expropriation protection, Ceyssens (2005), pp. 279–281; Tietje (2009), p. 14. 66 Sornarajah (2010), p. 193. 67 Article 14 of the German Constitution states: ‘Property entails social responsibility’. 68 These tensions are discussed in detail in Chap. 4. 69 For an overview of the scarce literature, see Akkermans and Ramaekers (2010), p. 293. 70 C-452/01, Ospelt and Schlössle Weissenberg, ECLI:EU:C:2003:493, Judgment of 23 September 2003, para. 24 with reference to further case-law. 71 Akkermans and Ramaekers (2010), pp. 302, 308; C-244/11, Commission v Greece, ECLI:EU:C:2012:694, Judgment of 11 August 2012, para. 17. 65

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and the fundamental freedoms are, however, applicable during any process of nationalization. The broader reading argues that Art. 345 TFEU covers the regime of property in its entirety, which prohibits any form of regulation of property law though EU law, but still contends that the exercise of property rights must be in in compliance with the fundamental principle of EU law.72 According to the latter reading, the expropriation clauses would fall outside the scope of EU law. The Commission has declared protection against expropriation clauses as an essential part EU investment policy.73 Such protection against expropriation clauses have therefore been included in the investment agreements negotiated so far.74 According to the narrow reading of Art. 345 TFEU, the EU would have the exclusive power to do so, which is supported by most commentators.75 One can read the respective clauses in investment treaties as not prohibiting expropriation in general but as only setting the conditions for a rightful expropriation such as prompt, adequate and effective compensation, which in their abstract formulations are arguably in line with the minimum standards with which EU Member States in any case have to comply with under EU law. Even under the broader reading of Art. 345 TFEU and thus assuming that expropriation regulations remain in the hands of the Member States, it is important to note, that also retained powers have to be carried out in conformity with EU Law including the fundamental freedoms, non-discrimination and proportionality.76 In Opinion 2/15, the Court follows the broader reading of Article 345 TFEU as in its previous case-law.77 Since the expropriation clause in the FTA Singapore only prescribes conditions for nationalization, it is not pre-empted by Article 345 TFEU. The Courts also stresses that the Member States remain obliged to comply with fundamental rights and non-discrimination which are meant to be ensured by the expropriation clause.78 AG Sharpston bases the legitimate inclusion of expropriation protection as the other standards of protection on their necessary contribution to investment flows which would be undermined if behind the border measures would not be regulated.79

Wernicke (2016), paras 13, 15. European Commission, Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, ‘Towards a Comprehensive European International Investment Policy’, COM(2010)343 Final, 8. 74 See, e.g., CETA, Article 8.12. 75 Dimopoulos (2011), pp. 110–111; Ortino and Eeckhout (2012), p. 320 who understand protection against unlawful expropriation as a general principle of EU law. 76 As argued by Kuijper (2010), p. 269; Benyon (2010), pp. 101–102. 77 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 107. 78 Ibid., paras 107, 108. 79 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 333. 72 73

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Besides the conclusion that protection against expropriation clauses fall under EU exclusive competence, one should again note that the expansion of CCP as it is the case with other protection standards is also justified by the Member States’ obligation to comply with EU fundamental principles. Therefore, the conclusion that expropriation clauses can be established without interfering with the right to maintain the own system of property rights and ownership as stipulated in Article 345 TFEU, is conditioned upon whether the derogations are applied in compliance with fundamental rights and non-discrimination principles of EU law.

3.4 Investment Powers Under Other Treaty Competences The following section turns to the relations of other EU competences and investment in order to on the one hand, interpret the newly gained powers by the CCP amendments from a contextual perspective80 and on the other, to determine whether portfolio investment as a crucial aspects of international investment policy, and which is not covered by the exclusive CCP powers, can be complemented by internal competences in conjunction with implied external powers.

3.4.1 Free Movement of Capital and Payments In the literature, there was agreement that Art. 63(1) TFEU covers all forms of transfer of financial assets between Member States and between Member States and third countries which can coincide with direct investments as well as portfolio investment.81 According to the Court’s far reaching interpretation of restrictions, Member States are prohibited from adopting any discriminatory or non-discriminatory measure that is liable to deter such investments.82 As it is the case with other internal market freedoms, although the competence is in principal shared (Art. 4(2) TFEU), the scope for Member State action is in fact substantially limited. Furthermore, the The fundamental freedoms provisions were not substantially amended by the Lisbon Treaty so that the expansion of investment powers only flows from the new CCP. Therefore, looking at the fundamental freedoms as they stand today can help to determine the intentions behind the CCP amendments. For the CJEU applying a contextual approach, see Case 283/81, CILFIT, ECLI:EU:C:1982:335, Judgment of 6 October 1982, para. 20. (‘Every provision of Community law must be placed in its context and interpreted in the light of the provisions of Community law as a whole, regard being had to the objectives thereof and to its state of evolution at the date on which the provision in question is to be applied.’) 81 Benyon (2010), p. 3; Hindelang and Maydell (2011), p. 6; Case 203/80, Casati, ECLI:EU:C:1981:261, Judgment of 11 November 1981; Joined cases 286/82 and 26/83, Luisi and Carbone, ECLI:EU:C:1984:35, Judgment of 31 January 1984. 82 See, e.g. C-367/98, Commission v Portugal, ECLI:EU:C:2002:326, Judgment of 4 June 2002, para. 45. 80

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freedom of capital is—unlike the other fundamental freedoms—not restricted to any nationality or origin criteria and thus can equally be invoked by third country nationals, albeit with the exceptions for foreign direct investment as stipulated in Article 64 TFEU. The initial establishment of direct and portfolio investment is covered in so far as it does not fall under the provision of freedom of establishment (Article 49 TFEU) or services (Article 56 TFEU). The latter two would not cover foreign investors. The Court has previous relied on the objective of the state measure concerned in order to distinguish whether capital freedom or another freedom is applicable.83 In the literature, the predominant strand assumes that post- establishment protection of foreign direct as well as portfolio investment is therefore not covered by an internal market freedom.84 The previously relied on implied external power was limited to admission of direct and non-direct investments.85 Further, Art. 65 TFEU states two exceptions, namely different treatment on grounds of tax law and the public policy derogation, that allow the Member States to deviate to a certain extent from the prohibition on restrictions. It has therefore been discussed whether this implies that the Member States have retained their competences in these fields. Dimopoulos suggests that such exception clauses cannot a priori impose limitations on the scope of EU’s competence.86 He draws on a comparison with the Member States’ possibilities to derogate from the freedom of goods provisions, which likewise does not affect the exclusive competence of the EU to regulate trade. Steffen Hindelang and Niklas Maydell argue, on the contrary, that the same exceptions should apply to extra-EU investments as to intra-EU investments.87 According to this reading, the Member states would then have retained their competence in these fields with regards to admission of investment depending on the formulation of public policy derogations. However, it is more convincing to acknowledge that the exceptions of Art. 65 TFEU do not impose any restrictions on the exclusive competence conferred by Art. 207 TFEU. In the light of Art. 64(2) TFEU, that states that the provision of the capital chapter shall be ‘without prejudice to the other Chapters of the Treaties’, the scope of CCP has to be interpreted independently.88 In support of an independent interpretation of each chapter, Frank S. Benyon aptly argues that CCP can be considered as lex specialis with regard to FDI as it specifically deals with the relation to third countries and not—as the capital freedom does—only expands an internal right to third country nationals.89

For an overview of the development of the case-law on this, see Benyon (2010), pp. 72–88. Ortino and Eeckhout (2012), pp. 316–317; Bischoff (2011), p. 1536. 85 Bischoff (2011), p. 1536. 86 Dimopoulos (2011), p. 78. 87 Hindelang and Maydell (2011), pp. 10–11. However, this argument might have to been in light of Hindelang’s and Maydell’s conviction that freedom of capital would apply directly to thirdcountry investments, Ibid., p. 26. 88 Benyon (2010), p. 83. 89 Ibid., p. 83. 83 84

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In sum, one should conclude that portfolio investment, which is not covered by CCP, falls under the shared competence of capital movement—with the exception of post-establishment protection, tax law and public policy. The existence and nature of the necessary external competence in order to be able to conclude international agreements is discussed below.

3.4.2 Implied Exclusive Powers The Commission has argued from the beginning for an exclusive competence to regulate portfolio investments according to the implied powers criteria.90 Art. 3(2) TFEU sets out the requirements that activate implied exclusive powers, whereas Art. 216(1) TFEU recognizes the general existence of implied external powers, but does not state their nature.91 The prevailing view in scholarly literature asserts that these provisions codify previous case law as their wording reflects the criteria developed by the Court and does not indicate any intention to modify or reject these criteria.92 This is also the view of the Court and AG Sharpston.93 Hence, a distinction between implied exclusive and implied shared competences can be drawn according to the previous case law. Art. 3(2) TFEU stipulates that, ‘the Union shall also have exclusive competence for the conclusion of an international agreement when its conclusion is provided for in a legislative act of the Union or is necessary to enable the Union to exercise its internal competence, or in so far as its conclusion may affect common rules or alter their scope.’ In order to assess whether the third ground applies, i.e. whether the conclusion of an agreement including portfolio investment may affect the common rules or alter their scope, it is, at first, necessary to ascertain whether sufficient common rules exist in the relevant field. The third ground stipulated in Art. 3(2) TFEU bears on the requirements first established in the ERTA judgment and should be interpreted in the light of that judgment and subsequent jurisprudence.94 According to the further European Commission, Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, ‘Towards a Comprehensive European International Investment Policy’, COM(2010)343 Final, 8. 91 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 64. 92 Hindelang and Maydell (2011), pp. 15–17; Dimopoulos (2011), p. 74 with further reference to; Dashwood (2010), pp. 360–362. 93 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, paras 120, 121; Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 231. 94 Case 22-70, European Agreement on Road Transport (ERTA), ECLI:EU:C:1971:32, Judgment of 31 March 1971; Opinion 1/03, Lugano Convention, ECLI:EU:C:2006:81, 7 February 2006; Case C-366/10, Air Transport Association of America (ATAA), ECLI:EU:C:2011:864, Judgment of 21 December 2011. 90

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developed ERTA-doctrine, common rules will be affected or altered in scope, when the EU already regulated and largely harmonized the relevant field, which has to be determined based on the scope of the rules in question, their nature and content, and the prospects for the future development of EU law.95 Therefore, one has to determine whether the secondary legislation referring to portfolio investment amounts to a body of rules that would activate an exclusive competence of the EU.96 Dimopoulos stressed that the respective legislation coincidentally tangents portfolio investments, but does not cover of all aspects of portfolio as their primary objective and concludes that the competence of concerning international portfolio investments is shared.97 However, the Court had also previously stated that for an area to be covered to a large extent by EU rules, the specific scope of the internal legislation and the external measure do not have to fully coincide, and neither does the scope of the internal legal base has to be exactly the same.98 In any case, the literature agrees that concerning portfolio the scope of EU regulation is far from ‘complete harmonization’99 or a uniform and consistent system of rules.100 In the absence of such common rules, the third ground of Art. 3 (2) TFEU would not apply. In their previous communication, the Commission has argued that Member States’ measures regulating portfolio investment between them and third countries will affect the acquis on free movement of capital and payments and that the EU thus holds the exclusive competence over such measures.101 In Opinion 2/15, the Commission finally raised a different and novel argument while refraining from any attempt to demonstrate the existence of a sufficient body of common rules as it did to substantiate the implied exclusive competence over cross-border transport services.102 The Commission, supported by the EP,103 referred to Article 63 TFEU as the Case 22-70, European Agreement on Road Transport (ERTA), ECLI:EU:C:1971:32, Judgment of 31 March 1971, paras 21, 22; Opinion 1/03, Lugano Convention, ECLI:EU:C:2006:81, 7 February 2006, para. 126. 96 See, e.g., Stock Exchange Directive 2001/34/EC [2001] OJ L184/1; Markets in Financial Instruments Directive 2004/39/EC [2004] OJ L145/1. 97 Dimopoulos (2011), p. 105. 98 Opinion 1/03, Lugano Convention, ECLI:EU:C:2006:81, 7 February 2006, paras 126, 131; Confirmed by Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 125. 99 As required by Opinion 1/94, WTO Agreement, ECLI:EU:C:1994:384, 15 November 1994, para. 96. 100 As required by Opinion 1/03, Lugano Convention, ECLI:EU:C:2006:81, 7 February 2006, para. 133; See, e.g. Dimopoulos (2011), p. 105; Ortino and Eeckhout (2012), pp. 317–318. 101 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, towards a comprehensive European international investment policy, COM(2010) 343 final, 8. 102 Such evidence is only reviewed if provided for by the party bringing forward the argument, Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 125; For an analysis of the legislation on transport services, see Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, paras 14, 15, 182–193. 103 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 95

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common rules that could be affected or altered in scope.104 The Commission reasoned that Article 63 TFEU is a different competence than those with which the previous case-law on the ERTA-principle was concerned, because it already includes an external dimension and therefore does not require secondary rules to ensure that also external elements are in place to establish a uniform common market.105 The Council stressed that the conditions for an ERTA competence are not fulfilled, since there has been no legislation enacted and the internal legal base (Article 63 TFEU) does in any case not coincide with the envisaged regulation of portfolio.106 The AG criticized the reasoning of the Commission detail. Article 3(2) TFEU must be read as codifying the previous case law,107 in which ‘common rules’ were always defined as secondary legislation.108 Moreover, EU primary law can only be changed by Treaty amendments in accordance with Article 48 TEU.109 An international agreement can therefore never alter the scope of primary law. She also rebuts the analogy to the Pringle case, in which the Court had to decide whether the Member States are prohibited from establishing the Treaty establishing the European Stability Mechanism (ESM Treaty)110 outside the EU, because of an exclusive EU competence stemming from a competence conferring norm (Article 122(2) TFEU) and Article 3(2) TEU, which was not the case.111 Therefore, there was no need to assess whether the international agreement would have been able to alter the scope of EU primary law.112 The Court accepts the argument that international agreement cannot alter primary EU law.113 Further, it adds that also the case law on the first ground of Article 3(2) TFEU shows that common rules are those of secondary law that in accordance with the principle of pre-emption when enacted prohibit the Member States from acting in that field externally.114 According to the Court as well as the dominant strand in the literature, the EU does therefore neither hold an exclusive competence over portfolio admission nor over protection. December 2016, para. 279. 104 Ibid., para. 277. 105 Ibid., para. 277. 106 Ibid., para. 289. 107 Ibid., para. 352. 108 Ibid., para. 353 with reference to; Opinion 2/92, National treatment, ECLI:EU:C:1995:83, 24 March 1995; and Opinion 1/94, WTO Agreement, ECLI:EU:C:1994:384, 15 November 1994. 109 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 354. 110 ESM Treaty signed on 2 February 2012. 111 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, paras 355, 356. 112 Case C-370/12, Pringle, ECLI:EU:C:2012:756, Judgment of 27 November 2012, paras 103, 104. 113 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 235. 114 Ibid., paras 233, 234.

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3.4.3 Implied Shared Powers Further, Article 216 (1), second ground, TFEU could provide for an implied competence, which is according to Article 4(1) and (2)(a) TFEU shared. This option was only to a limited extent discussed in the literature.115 In the hearing to Opinion 2/15, it was discussed whether Article 216 (1) TFEU does require an internal competence for adopting legislation and if yes, whether Article 63 TFEU would be sufficient.116 The Council repeats its claim that that Article 63 TFEU does not cover all the forms of investment protection in question, which as seen above finds support in the literature.117 Additionally, the Council insists that Article 63 TFEU is not a legal base for adopting secondary legislation, which would be required.118 The Commission contents that Article 63 TFEU is aimed at liberalization and stipulating a prohibition of restriction. It therefore does not anticipate the need for secondary legislation. Since the agreement is also aimed at liberalization, a legal base for harmonization would not be appropriate. The AG confirms this argument by the Commission. An internal legal base is required but only in that sense that the policy field must be covered by EU.119 The latter is, according to her, the case in light of the broad definition of movement of capital.120 In accordance with the AG, the Court deems the conclusion of a portfolio investment agreement necessary in the sense of Article 216(1) TFEU and follows the arguments of the Commission, which claimed that for liberalizing extra-EU capital movement, reciprocal international agreements are common practice.121 Although, as the Council submits, Article 63(1) TFEU does not require an international agreement since it is directly applicable to extra-EU investments, these provisions would not be bind third states and therefore disadvantage the EU.122 The competence under Article 216(1) TFEU remains a shared competence and therefore the decision to use this competence is understood as a political decision, mainly within the Council, which is in charge of initiating the required proceedings for concluding an international agreement under Article 218(8) TFEU.123 The criterion of necessity in Article 216(1) TFEU therefore only implies whether it is technically necessary to conclude

Hindelang and Maydell (2011), pp. 23–26. Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 364. 117 Dimopoulos (2011), p. 105. 118 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 364. 119 Ibid., para. 365. 120 Ibid., para. 367. 121 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 240. 122 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 294. 123 Thym D (2017) Mixity after Opinion 2/15: Judicial Confusion over Shared Competences. In: Verfassungsblog. http://verfassungsblog.de/mixity-after-opinion-215-judicial-confusion-overshared-competences/. Accessed 14 March 2019. 115 116

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an international agreement, whereas necessity in terms of effectiveness has to be judged by the policy makers. The Court does not—and the AG only briefly—discuss whether portfolio post- entry protection is at all covered by Article 63 TFEU or remains exclusive Member States competence. This however has been claimed by the Council124 and has been debated in the literature as seen above. Neither, it was explicitly debated whether the exceptions in Article 65 TFEU, namely tax law and the public policy derogation, remain exclusive competence for portfolio admission. The precise scope of this shared competence therefor remains unclear.125

3.5 Derogations However, it was discussed in general whether, next to Article 345 TFEU, many of the protection provisions such as national treatment, FET and the full protection and security clause are encroaching upon the exclusive Member States competence, because they set conditions for derogations on grounds of public order, public security, criminal law, tax law and social security.126 The Court rebuts any encroachment for that those derogations do not establish any commitment, even though the provisions stipulate conditions for such a derogation to be legitimate such as necessity and not constituting a disguised trade restriction.127 However, the Court, in agreement with the AG, contends that such conditions are inherent to international trade.128 Even within the fields of their exclusive competence, Member States must not act in a way ‘that does render the trade commitments redundant’.129 Further, as seen with regards to Article 345 TFEU, fundamental rights and principles of non-discrimination also apply to fields of retained Member States competence.130 Following this reading, the EU is competent to set such conditions. However, as stated above, since the limitation of the exclusive Member States competence are legitimate because they are grounded on EU fundamental rights principles, the EU must ensure that these derogations are actually applied in compliance with the latter in order to prevent a competence encroachment. As it is d iscussed Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 289. 125 See, also Thym D (2017) Mixity after Opinion 2/15: Judicial Confusion over Shared Competences. In: Verfassungsblog. http://verfassungsblog.de/mixity-after-opinion-215-judicialconfusion-over-shared-competences/. Accessed 14 March 2019. 126 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 97. 127 Ibid., paras 101, 102. 128 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 335; Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 102. 129 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 103. 130 Ibid., paras 107, 108. 124

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in Chap. 4, this might be problematic because the requirements are broadly phrased and leave much room for interpretation.

3.6 Investor-State-Dispute Settlement As said above, the extensive discussion in politics131 as well as the concerns expressed by large-scale public mobilization132 and academics133 were mainly centered around the compatibility of ISDS with EU law and its proclaimed necessity in light of functioning judicial systems within the EU.134 After the regional parliament of Wallonia blocked Belgium’s ratification of CETA on these grounds, Belgium eventually requested an opinion pursuant to Art. 218(11) TFEU on the questions of compatibility.135 The compatibility of the reformed version of ISDS—the so called Investment Court System (ICS)—that became part of CETA will therefore be subject of Opinion 1/17. On 29th January 2019, AG Bot delivered his opinion on Opinion 1/17, declaring the CETA Tribunal compatible with EU Treaties.136 This opinion is not discussed in detail at this stage since it does not alter the scope of competence. It is relevant when discussing the parameters that should inform EU investment treaty making in general (such as the principle of equal treatment and the right to access an independent and impartial tribunal) and should be kept in mind when discussing other mechanisms and fora discussed in this book. From a human rights perspective, two dimensions should be kept in mind: First, fundamental rights might raise compatibility issues of the current EU ISDS proposal. Second, compatibility constraints set by Opinion 1/17 might conversely limit concepts of more far reaching mechanisms for human rights compliance within the realm of trade and investment agreements. In scholarly literature, the competence was only questioned complementarily, for example by the German Association of Judges137 and the European Association of

See, e.g. European Parliament INTA Committee (2016) Legal opinion ‘Investment dispute settlement provisions in the EU’s trade agreements’. 132 See, e.g. the EU Citizens’ Initiative, https://stop-ttip.org/about-stop-ttip/. 133 Legal Statement by Law Professors from October 2016, https://stop-ttip.org/wp-content/ uploads/2016/10/28.10.16-Updated-Legal-Statement_EN.pdf. 134 Marwedel (2016); Krajewski (2014), p. 16; Schill (2013). 135 Belgium obliged itself to request such an opinion. See, the resolution between the Belgian federal government and the regional and community governments from 27th October 2017, http:// rf.llb.be/file/6f/5811e50fcd70fdfb1a589e6f.pdf. 136 Opinion 1/17, Opinion of Advocate General Bot (CETA), ECLI:EU:C:2019:72, 29 January 2019. 137 German Association of Judges on February 2016, http://www.drb.de/fileadmin/docs/ Stellungnahmen/2016/DRB_160201_Stn_Nr_04_Europaeisches_Investitionsgericht.pdf. 131

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Judges.138 The competence was in principal assumed, because of the settled case- law stating that the EU competence to conclude international commitments must include setting up the necessary institutional underpinnings.139 Part of such institutional underpinning may also be courts established by that agreement as far as they interpret and apply the provisions thereof,140 which as the Court asserts in Opinion 2/15, can be extended to all bodies performing judicial functions including dispute settlement mechanisms.141 However, the Court has also previously set limits to the establishment of such a court.142 Such an international court must not be in the position to apply and interpret EU law and thereby undermining the autonomy, uniformity and consistency of EU law and altering the European judicial court systems as stipulated in Art. 19(1) TEU.143 By the same token, the ECJ also declared that the Member States are prohibited from forwarding claims that potentially involve adjudicating EU law to an international arbitral tribunal.144 The FTA Singapore as underlying Opinion 2/15—and as it is commonly done— stipulates a right for the investor to initiate ISDS proceedings, by requesting the establishment of an ISDS tribunal under ICSID or ad hoc in accordance with UNCITRAL rules.145 It further establishes ex-ante consent (Article 9.16.2 FTA Singapore) on the part of the Member States.146 Besides, the FTA Singapore includes a so-called fork in the road provision, which requires the investor to choose between pursuing legal remedies before domestic courts or ISDS in order to prevent parallel proceedings, and by doing so risking contradicting outcomes.147 These provisions in combination and in particular the absence of any possibility for the Member States to oppose the initiation of an ISDS proceeding, led the Court to find that this regime is not ancillary in the sense of the previous case law. The Court precisely held that this regime ‘removes the disputes from the jurisdiction of the courts of the Member European Association of Judges on 9th November 2015, http://www.iaj-uim.org/iuw/wp-content/uploads/2015/11/EAJ-report-TIPP-Court-october.pdf. 139 Opinion 1/76, Inland Waterway Vessels, EU:C:1977:63, 26 April 1977, para. 5; Opinion 1/78, Natural Rubber, ECLI:EU:C:1979:224, 4 October 1979, para. 56; Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 276. 140 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 298; with reference to Opinion 1/91 (First Opinion on the EEA Agreement), EU:C:1991:490, 14 December 1991, paras 40, 70; Opinion 1/09, Unified Patent Litigation System, ECLI:EU:C:2011:123, 8 March 2011, pt. 74; Opinion 2/13, Accession of the European Union to the ECHR, EU:C:2014:2454, 18 December 2014, para. 182. 141 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 299. 142 Opinion 1/09, Unified Patent Litigation System, ECLI:EU:C:2011:123, 8 March 2011, para. 89. 143 Opinion 1/76, EEA Agreement, ECLI:EU:C:1991:490, 14 December 1991, paras 45, 46; Opinion 1/09, Unified Patent Litigation System, ECLI:EU:C:2011:123, 8 March 2011, paras 73–89. 144 Case C-459/03, Commission v Ireland (MOX plant), ECLI:EU:C:2006:345, 30 May 2006, para. 123. 145 See, Article 9.16 FTA Singapore. 146 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 290. 147 See, FTA Singapore, Article 9.17.1(f). 138

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States’.148 Therefore, such a regime falls within the ‘shared competence’ between the EU and the Member States.149 This conclusion raised considerable confusion in scholarship, because of the novel reasoning underlying the finding of a shared competence instead of relying on the case-law that was discussed in the literature and which set limits on grounds of the need to preserve the nature of EU judicial system.150 Since this issue does not apply to the dispute settlement mechanism for disputes between the parties, the Court found this mechanism to fall within CCP as the ancillary institutional framework for the substantive provisions.151 Further, the Court as well as the AG explicitly stressed that the requested opinion did not encompass the issues of compatibility.152 The Court therefore clarified that such issues as autonomy of EU law or the question of how to safeguard the interpretation of Union law are matters of compatibility. The competence of ISDS was denied on other grounds— by utilizing a novel argument. AG Sharpston, on the contrary, found that the inclusion of ex-ante consent would not differentiate ISDS from other judicial bodies to which the previous case law, which did not find a lack of competence, was deemed applicable.153 According to her, the question concerning the ex-ante consent as well as the allocation of financial responsibility, which she distinguished from imposing directly financial discharges, are matters of compatibility.154 Further, she did not see a problem in the EU not being a member to ICSID, since an issue of international law has no effect on the determination of EU competence under EU law.155 In her opinion, the ISDS mechanism would therefore partly fall under EU exclusive and partly under shared competence depending on the substantive provision in question. The Court, however, finds ISDS to fall entirely under shared competence as this is necessary to preserve the jurisdiction of the Courts of the Member States. What the Court meant Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 292. Ibid., para. 293. 150 See, e.g. Kleimann D, Kübek G (2017) The Singapore Opinion or the End of Mixity as We Know It. In: Verfassungsblog. http://verfassungsblog.de/the-singapore-opinion-or-the-end-ofmixity-as-we-know-it/. Accessed 14 March 2019; Thym D (2017) Mixity after Opinion 2/15: Judicial Confusion over Shared Competences. In: Verfassungsblog. http://verfassungsblog.de/ mixity-after-opinion-215-judicial-confusion-over-shared-competences/. Accessed 14 March 2019. 151 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 303. 152 Ibid., paras 301, 302; For a detailed discussion, see von Papp (2013). 153 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 526 with reference to; Opinion 1/09, Unified Patent Litigation System, ECLI:EU:C:2011:123, 8 March 2011, para. 74; Opinion 2/13, Accession of the European Union to the ECHR, EU:C:2014:2454, 18 December 2014, para. 182. 154 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, paras 526, 531; with reference to Opinion 1/78, Natural Rubber, ECLI:EU:C:1979:224, 4 October 1979, para. 60. 155 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 528 with reference to; Opinion 2/91, ILO Convention, EU:C:1993:106, 19 March 1993, paras 3–5. 148 149

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with shared competence in this context without referring to any Treaty provisions and arguably in the absence of any option, remains unclear. Legal scholarship has responded to these uncertainties with different attempts to interpret the term used by the Court. Daniel Thym attempts to rationalize the use of shared competence with regards to ISDS by tracing a different concept of ‘shared competence’ in the case law on external relations.156 In contrast to the genuine distinction in the Treaties, already previous case law on external relations, so he contends, used the term ‘shared competence’ to describe in fact a situation of mandatory ‘mixity’, meaning exclusive competence for both the EU and the Member States.157 Still, this expression of shared competence would have to be distinguished from the use of shared competence in context of portfolio which is again in line with the Treaty distinction based on Article 216(1), 4(2) TFEU. Conclusively, this means that either the Court is using these two versions of ‘shared competence’ inconsistently, or it came to the conclusion that even if a competence is shared in the sense of the Treaties, mixity is always required and the option of concluding an EU only agreement is ruled out.158 As Thym rightly points out, the latter understanding is supported by the Court’s conclusion that portfolio aspects ‘cannot be approved by the European Union alone’159 which implies a mandatory involvement of the Member States.160 This would however eliminate the concept of shared competence from external relations. Shared competence would in fact be treated like an exclusive Member States competence and always lead to mixity if combined with EU exclusive aspects.161 According to the original understanding of shared competence, in line with the concept as it is applied internally, the EU could under certain circumstance act exclusively (according to the principle of subsidiarity) and, provided the political support, opt for—what has been termed—an ‘facultative EU-only agreement’. The Thym D (2017) Mixity after Opinion 2/15: Judicial Confusion over Shared Competences. In: Verfassungsblog. http://verfassungsblog.de/mixity-after-opinion-215-judicial-confusion-overshared-competences/. Accessed 14 March 2019. 157 See, e.g., the ECJ refers to ‘shared competences’ in the context of GATS which in fact describes a situation involving retained Member States competence, Opinion 1/94, WTO Agreement, ECLI:EU:C:1994:384, 15 November 1994, para. 98. 158 This reading is suggested by Ankersmit L (2017) Opinion 2/15 and the future of mixity and ISDS. In: Eur. Law Blog. http://europeanlawblog.eu/2017/05/18/opinion-215-and-the-future-ofmixity-and-isds/. Accessed 14 March 2019; See, also Kleimann D, Kübek G (2017) The Singapore Opinion or the End of Mixity as We Know It. In: Verfassungsblog. http://verfassungsblog.de/thesingapore-opinion-or-the-end-of-mixity-as-we-know-it/. Accessed 14 March 2019. 159 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 244. 160 Thym D (2017) Mixity after Opinion 2/15: Judicial Confusion over Shared Competences. In: Verfassungsblog. http://verfassungsblog.de/mixity-after-opinion-215-judicial-confusion-overshared-competences/. Accessed 14 March 2019; Kleimann D, Kübek G (2017) The Singapore Opinion or the End of Mixity as We Know It. In: Verfassungsblog. http://verfassungsblog.de/thesingapore-opinion-or-the-end-of-mixity-as-we-know-it/. Accessed 14 March 2019. 161 See, also Kleimann D, Kübek G (2017) The Singapore Opinion or the End of Mixity as We Know It. In: Verfassungsblog. http://verfassungsblog.de/the-singapore-opinion-or-the-end-ofmixity-as-we-know-it/. Accessed 14 March 2019. 156

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EU could also decide to not exercise the shared competence and conclude a ‘facultative mixed agreement’. Therefore, if one would take the ECJ decision literally and assume that the competence over ISDS and portfolio are shared, the EU could indeed proceed and conclude the FTA Singapore as a facultative EU only agreement. This and the other remaining policy options as well as the consequences for human rights integration are discussed in the following sections. Further, it is important to mention, that the Court established that conferring a right upon an intergovernmental body set up by the very agreement to adjust the meaning of investor protection provisions by issuing declarations of interpretations is covered by CCP.162

3.7 Termination of Member States’ BITs The extent to which the EU will be able to substitute the regulation of international investment of its Member States depends on the extent it can terminate the BITs currently in force. The FTA Singapore included a provision that would terminate all BITs between the Member States immediately upon entry into force of the EU agreement.163 The Court states that based on settled case law the EU succeeds into the place of its Member States with regards to international agreement as soon as the EU gains exclusive competence.164 This is supported by Article 2(1) TEU, according to which the Member States are prohibited from acting within the fields of EU exclusive competence. The Court further stresses that the rationale behind Article 351 TFEU is to enable Member States to comply with their international law obligations that they entered into before acceding to the EU, and that therefore this Article does not have any effect when the third state explicitly wished to terminate these international law obligations.165 This argument also rebuts the claim made by the Council and the Member States that in accordance with international law (namely Article 59(1)(a) of the VCLT) only parties to the respective agreement can terminate such.166 Obviously, the EU must not terminate such agreement unilaterally. In case, the third state does not agree, Article 351 TFEU will apply and the Member States remain bound to the international obligations and are required to eliminate all incompatibilities as far as Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 268, 278. Articled 9.10 FTA Singapore. 164 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 248 with reference to; Joined cases 21 to 24-72, International Fruit Company, EU:C:1972:115, Judgment of 12 December 1972, paras 10–18. 165 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 254 with reference to further case-law. 166 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 303. 162 163

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possible. However, this right to terminate the Member States’ BITs is limited to those provisions that are covered by the exclusive competence, and does therefore not cover non-FDI.167 Contrary to the AG, who engaged in extensive elaboration, the Court did not perceive the question as a novel one. Indeed, it is convincing that as soon as the EU succeeds into the rights and obligation of the Member States as established in International Fruit Company,168 it can terminate those in agreement with the third state. AG Sharpston argues that there is no legal base in international law for a succession.169 This assertion is not convincing, since both relationships in isolation—that between the EU and the Member State and that between the EU and the third state—are in accordance with the applicable international and EU law. The third relationship ceases to exist as far as the third state does not disagree. On the contrary, the Member States would require a legal base to be able to claim a right of consent.

3.8 S umming Up: Mapping the Competences and Discussing the Options According to the ECJ, the exclusive competence of CCP covers admission as well as protection of direct investment. The regulation of portfolio falls under the implied external competence which is shared (Article 63 TFEU, Article 216(1) TFEU and Article 4(2) TFEU). Assuming the Court applied the concept of shared competences as envisaged in the Treaties, the EU could opt for an EU-only agreement if the Council activates the procedure of Article 218 TFEU. In the literature, the dominant strand claimed that the capital chapter and therefore the implied external competence do not provide a legal base that covers all aspects of portfolio regulation including the full-scope of post-admission protection. This objection was not discussed in detail in the decision. Therefore, one should assume that the Court understands the competence as being broader, i.e. covering the measures necessary to pursue the Treaty objective of liberalizing capital movement.170 The Court and the literature agree however that portfolio access and initial establishment regulation fall under the shared competence of the capital chapter. Derogations that regulate areas that fall under the Member States exclusive competence such as public policy and tax regulation fall under the respective EU competence. However, this

Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 256. Joined cases 21 to 24-72, International Fruit Company, EU:C:1972:115, Judgment of 12 December 1972, para. 18. 169 Opinion 2/15, Opinion of Advocate General Sharpston, Singapore, ECLI:EU:C:2016:992, 21 December 2016, para. 396. 170 Thym D (2017) Mixity after Opinion 2/15: Judicial Confusion over Shared Competences. In: Verfassungsblog. http://verfassungsblog.de/mixity-after-opinion-215-judicial-confusion-overshared-competences/. Accessed 14 March 2019. 167 168

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conclusion only holds as long as these derogations are in compliance with EU fundamental rights principles and non-discrimination. These conclusions result in the following policy options. Even though the inclusion of portfolio regulation is a common practice of investment agreements, there exist, nevertheless, agreements that deliberately exclude portfolio. The need as well as the legitimacy for portfolio protection has been critiqued on many grounds. The constantly changing identities and remoteness of shareholders does not lead to the same power and responsibility relation between the host state and a direct investor.171 In addition, shares acquired on a stock market are much more prone to sudden withdrawal, which in the past obviously have led to shocks of financial markets and posed severe risks on the protection granting states.172 It is therefore rightly questionable whether portfolio investors should be granted the same protection as direct investors and whether they contribute equally to the economic development or even the economic relations between the parties which are, according to the preamble, the reasons for concluding investor protection. Hence, with regards to the portfolio post admission phase, one can also suggest to abandon such regulation through IIAs altogether. Furthermore, it is argued that portfolio protection is in any case warranted from other sources (such as diplomatic protection).173 However, in current Member States’ BITs portfolio protection is prevalent. In order to guarantee the ‘gold standard’ of investor protection as proclaimed by the Commission174 and not to lag behind the already established level of protection by the Member States’ BITs, the reliance on diplomatic protection might not suffice.175 Therefore, it seems likely that portfolio protection remains included in EU investment policy and probably while following the Court’s conclusion as part of EU only or mixed agreements. Furthermore, from the view point of human rights protection, one should be aware that portfolio flows also raise many human rights questions which is why their regulation is an important venue for human rights integration.176 Only abandoning the regulation of portfolio at EU level will most likely not alter the existing level of portfolio protection in international investment relations, but rather lead to a regulatory divide between direct and portfolio investment, which might not be desirable from a human rights perspective. For an EU investment policy to be able to respond to the current breadth of the international investment regime, the approach towards ISDS has to be solved (especially if the ISDS competence is understood as Member States’ exclusive competence). Several policy options have already been suggested. One of them is to

Sornarajah (2010), pp. 9, 196. Ibid., p. 196. 173 Bungenberg (2010), pp. 148, 150. 174 Hoffmeister and Ünüvar (2013), pp. 57, 70. 175 Marc Bungenberg (2010), pp. 148, 150. 176 The fact that so-called ESG factors have been established to assess environmental, social and governance risks of projects that are part of portfolio investment shows that such interrelations have already been recognized. 171 172

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‘reverse of the merger of trade and investment’177 since the remainder of the new generation of trade agreements falls entirely under exclusive EU competence.178 The EU could then conclude all investment agreements as mixed agreements including some form of ISDS, which in light of current contestations is a political challenge. Further, it has been proposed that the EU could still include ISDS in an EU only agreement while making exhaustion of local remedy before Member States’ courts a condition for the admissibility of a claim.179 The EU could also only exclude ISDS from investment treaties while opting for an EU-only agreement and either pursue the idea of a multilateral agreement on the envisioned ICS which needs to be ratified by the EU and all Member States or conclude ISDS as a mixed side- agreement. It has also been suggested that ISDS at EU level will completely be dropped.180 What does this complex division of competences mean for a distinct EU policy agenda? And—to turn to the most pertinent aspect for this book’s question—to what extent will the fact that the Member States enjoy partly shared and partly exclusive competence compromise on an EU strategy that incorporates and duly respects its foreign policies objectives (such as the human rights objective) and its fundamental and human rights obligations? The next section shows that competence division is not the only organizational principle governing vertical cooperation and that especially the duty to loyal cooperation as stemming from the Treaty and developed by the Court is an important cornerstone of the legal framework that impacts on the investment power allocation. Further, the next section comes back to what has been highlighted in the discussion of the Court’s reasoning in Opinion 2/15, which are the obligations of Member States to comply with the fundamental principles of the EU also in the field of retained competences.

3.9 The Remaining Role for Member States Assuming EU investment regulation that is at par with conventional investment regime requires the participation of Member States, it becomes pertinent to analyze how much room there is for a distinct EU foreign investment policy to emerge that is—at it is claimed by this book—based on its external human rights objective and, conversely, how much room there is left for diverging strategies of the Member Roberts A (2017) A Turning of the Tide against ISDS? In: EJIL Talk. https://www.ejiltalk.org/aturning-of-the-tide-against-isds/. Accessed 14 March 2019. 178 Gáspár-Szilágyi S (2017) Opinion 2/15: Maybe it is time for the EU to conclude separate trade and investment agreements. In: Eur. Law Blog. http://europeanlawblog.eu/2017/06/20/opinion215-maybe-it-is-time-for-the-eu-to-conclude-separate-trade-and-investment-agreements/. Accessed 14 March 2019. 179 Roberts A (2017) A Turning of the Tide against ISDS? In: EJIL Talk. https://www.ejiltalk.org/aturning-of-the-tide-against-isds/. Accessed 14 March 2019. 180 Sarmiento D (2017) The Singapore Silver Bullet. In: Verfassungsblog. http://verfassungsblog. de/the-singapore-silver-bullet/. Accessed 14 March 2019. 177

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States. Next to the fields that are exclusive Member States competence, also in the fields that fall under competences shared with the Member States, the Member States are allowed to take autonomous action according Art. 2(2) TFEU. However, the principle of sincere cooperation as stipulated in Art. 4(3) TEU imposes restrictions on the Member States room to maneuver and particularly obliges the Member States to observe principle of fundamental rights as well as the EU objectives, including the foreign human rights objective. This principle applies to both shared as well as exclusive Member States’ competence, although differing in degree. The ECJ developed strict and concrete obligations in the context of mixed agreements that follow from that principle such as procedural requirements of information and consultation,181 a duty of abstention182 and a duty to close cooperation during process of negotiation, conclusion and implementation.183 The duty of abstention entails that Member States are ‘pre-empted’ to act unilaterally as soon as a common strategy for EU action emerges, even if not yet officially adopted, and unilateral action could potentially have negative impacts on that strategy.184 In addition, in the BIT cases, the Court held that the Member States have to take precautionary steps such as including reservations in international agreements that provide for an adjustment in case incompatibilities with EU law through future EU action arise (even though at that stage they were only hypothetical).185 Therefore, the duty of cooperation may expand the jurisdiction of the Court to cover fields that are not (yet) part of EU law in order to safeguard the duty of cooperation and the unified interpretation thereof.186 The development of the case law further shows that the legal obligations become more clear and imperative the more interrelated the fields of competences are—possibly even shifting from a duty of conduct (in the sense of best endeavors) to a duty of result (in the sense of achieving a unified representation and a common position) or to a duty to perform a specific action.187 It is furthermore important to note that the duty of cooperation is not only triggered at the implementation stage of a mixed Case C-459/03, Commission v Ireland (MOX plant), ECLI:EU:C:2006:345, Judgment of 30 May 2006, paras 179–182 which concerned dispute resolution under mixed agreement in a field where the competences of the Member States and of the EU were according to the Court closely interrelated. 182 Case C-246/07, Commission v Sweden (PFOS), EU:C:2010:203, Judgment of 2010, para. 103 which concerned the decision making under the framework of a mixed agreement, in which Member State (Sweden) diverged from a common EU strategy that has not been formally adopted yet. 183 Opinion 2/91, ILO Convention, EU:C:1993:106, 19 March 1993, para. 36. 184 Case C-246/07, Commission v Sweden (PFOS), EU:C:2010:203, Judgment of 2010, para. 74; For a critical view on this, see Larik and Casteleiro (2011). 185 C-205/06, Commission v Austria, ECLI:EU:C:2009:118, Judgment of 3 March 2009; C-249/06, Commission v Sweden, ECLI:EU:C:2009:119, Judgment of 3 March 2009; See, also Lavranos (2009), p. 720. 186 Hillion (2009), pp. 10, 11. 187 Ibid., p. 20. 181

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agreement, where additionally also bone fide obligations towards the EU as a treaty party already emerging from international law imply the observation of other objectives and obligations that although falling under EU competence penetrate fields of retained Member States’ competence. As a principle of EU law, it places additional obligations on the Member States at the negotiating and concluding stage of an agreement and more over also extends to the deliberation stage of a policy. Hillion inferred from the case law that the decisive factor for determining the normative strength of obligations flowing from the duty to cooperation is the degree of mixity, rather than the nature of the competences at stake.188 Hence, depending on the type of agreement chosen for future investment policies and bearing in mind that large parts of conventional investment regulation are covered by EU exclusive competence, the duty to cooperation might considerably constrain Member States action depending on the degree of the interrelation between the separate fields of competence.189 It is important to stress that the duty of cooperation does not only compel to cooperate on a procedural level, it also supports a substantive convergence. The reference for alignment for the duty to cooperation are the Union objectives (Art. 4(3)(3) TEU), which—as it has been criticized—renders the formally mutual duty to cooperation practically biased towards EU interests.190 Furthermore, as seen above, the Member States must respect in particular the fundamental structures of EU law, also when acting in the fields of their exclusive competences. It is therefore important to recall, that fundamental rights have been elevated to such a core principle.191 This line of reasoning finds support in Opinion 2/15. The Court explicitly stated that the EU as well as the Member States have to observe general principles of EU law, including the principle of good administration, effective judicial protection and non-discrimination, during the application of the agreement including in fields of ‘shared’ competence.192 The expansion of CCP (in case of protection standards such as non-discrimination and expropriation) was precisely justified by the Member States obligation to comply with fundamental rights. Therefore, in contrast to the application of the CFR that depends on whether the Member States are implementing EU law, human rights as a foreign policy objective goes beyond the confines of EU competence. The human rights objective in conjunction with the duty to cooperation allows the EU to regulate beyond its strict Ibid., p. 22. Case C-459/03, Commission v Ireland (MOX plant), ECLI:EU:C:2006:345, Judgment of 30 May 2006, para. 176. 190 Casolari (2012), p. 34. 191 Joined Cases C-402/05 P and C-415/05 P, Kadi and Al Barakaat International Foundation v Council and Commission, ECLI:EU:C:2008:461, Judgment of 2008; Joined Cases C-584/10 P, C-593/10 P and C-595/10 P, Commission and Others v Kadi, ECLI:EU:C:2013:518, Judgment of 18 July 2013. 192 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 284 in the context of cross-cutting transparency rules. 188 189

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competence (as seen with the derogations) and therefore might compel Member States to comply with investment-related human rights strategies developed at EU level for that they need to align their action with the Union objectives in order to comply with the duty to cooperation. The EU human rights objective therefore influences the Member State action in the fields of Member States’ exclusive competence in two ways. First, as an explicit reference for the principle of sincere cooperation and also if the EU developed policies in order to pursue the human rights objective. Second, human rights or fundamental rights govern Member States action in the fields of retained competence by virtue of forming part of the fundamental structures of EU law. One should also take note, that because of the human rights objective thus playing a role for the competence allocation it works both ways. The EU must exercise its competence while ensuring its compliance with fundamental rights as this is constituting the condition for the competence expansions. In that regard, one needs to look closely what is being declared as fundamental rights protection especially as in the case of justifying investor protection provisions only foreign investors are the beneficiaries.

3.10 Conclusion The majority of substantive aspects of the conventional international investment regime, that is direct investment admission and protection, fall under EU exclusive CCP competence. Portfolio admission falls under shared competence and most likely also portfolio protection. ISDS, one of the most controversial aspects, falls however under retained Member States competence. This complex competence division opens the way for many possible policy options. In any case, the deliberation, the agreement and implementation of such policy in substantive terms must comply with EU foreign policy objectives and fundamental principles. The Member States have to comply with EU fundamental rights also in the fields of retained competence and depending on the degree of mixity also generally with an EU investment policy that should ideally have incorporated the EU human rights framework as outlined in Chap. 2. This is both due to the principle of sincere cooperation and to fundamental rights forming part of the fundamental structures of the EU. This analysis further brought to light the peculiar position the EU is endowed with as compared to other actors of the international investment scene. The added layer of constitutional requirements, such as the vertical power allocation, the autonomy of EU Law, fundamental principles and the general objectives of external action, will have to be duly taking into account while designing the future EU investment policy and cannot be traded off in IIA negotiations. The human rights relevance of those aspects for which the EU is the competent regulator is discussed in detail in Chap. 4. Chapter 4 also touches upon those aspects not falling under the exclusivity, because first—as this chapter has shown—

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independently from the policy options chosen, the constitutional mandates in conjunction with the duty to cooperation might diminish the room for diverging Member States action. Furthermore, overarching investment strategies that are deliberated at EU level and must integrate human rights will—as covering the majority of aspects of international investment regulation—be determinative for the marginal substantive aspects that may fall under retained Member States competence as well as procedural enforcement mechanisms. Second, because the legal and factual context that will matter for bringing EU action in compliance with their constitutional human rights mandate also goes beyond the confines of its exclusive competence. The EU will be required to anticipate how its regulatory acts will interact with the existing legal framework within the boundaries of foreseeability. Further, it needs to be mentioned that the mechanisms that are discussed in Part III of this book still fall under EU exclusive competence. As Opinion 2/15 confirmed, the cross-cutting SD chapter remained exclusive competence, albeit within the limits discussed in Chap. 2. The same is true for integration of human rights aspects in the policy making. However, one should be aware that human rights strategies developed at EU level in this context will directly impact on everything covered by EU exclusive competence, whereas for the other aspects the impact might be more indirect (e.g. through the duty of cooperation) and depend on the type of agreement chosen. Another point to make at this stage is that, if a reversal of the merger of trade and investment policies will materialize, the analysis in part III of this book, which looks at mechanisms that originated from trade agreements, may become even more important. Part III demonstrates the need and the potential of trade-related human rights instruments for investment regulation. Even if trade and investment regulation will be separated, these mechanisms should continue to apply to both either by means of an overarching agreement or by including them in both. As a final point to keep in mind, this chapter next to delineating the current confines of the EU investment powers at this point in time, also brought to the fore—in light of the relative flexible boundaries of the CCP that are being constantly adjusted to the changing breadth of international economic regulation—the particular relevance for an EU investment policy to be anchored in fundamental rights as a safeguard for the competence division. The EU human rights framework thus ultimately governs both EU and Member States action.

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Part II

The Context: Entering an Unjust Regime?

This part looks in more detail into one specific field of international economic regulation: international investment law. It demonstrates that this field of law is particularly exclusionary; it perpetuates human rights violations and discrimination existing at national level. That is first because it only grants access to the shaping and the implementation including the adjudication to certain actors and second because it is built on putting any regulation and state action under an assumption of breach including those that are aiming for human rights advancement and combatting exclusion such as affirmative action, redistributive justice or the protection of the most vulnerable parts of society as soon as it sets constraints to economic activity of foreign investors. Chapter 4 demonstrates how the substantive international investment law captures and sanctions such state measures directly and how the diversity of threats and techniques of exclusion also lead to many human rights violations remaining concealed. This chapter also discusses the recent increased openness towards human rights in international investment law but concludes that it is still volatile because of its inconsistency, the lack of any authoritative methodology and a selective and therefore allegedly biased integration of certain human rights and methodology. This selective approach is manifesting the investor privilege and is not compatible with the indivisibility paradigm of human rights law. Further, such proposals for increased human rights integration in the literature and isolated attempts in arbitration are also volatile, because this regime so far developed into a largely autonomous field of law with uniform standards of good governance, which is partly backed by scholarship. Attempts to regain legislative control will therefore require increased efforts and textual clarity by the treaty makers. Chapter 4 also explains how human rights interests, especially those of politically marginalized at local level, remain excluded at the procedural stage. Entry barriers are the lack of legal standing and the inconsistent and non-transparent approach towards amicus curiae submission and the lack of interest on the part of the host states in spelling out their own human rights obligations (and even less so their failures) and the resulting focus on regulatory discretion. For all these reasons,

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this part concludes that the current structure of the regime substantively and procedurally shows little transformative potential. Chapter 5 looks into the EU’s position towards each of the problems identified in Chap. 4, which is in the midst of undergoing reforms. Although some individual aspects may therefore still undergo changes, Chap. 5 can already demonstrate that the strategies adopted so far as well as the identification of problems will only marginally remedy the systemic imbalance of rights protection. The EU reforms mainly target the procedural level, where substantial innovations were achieved. Nevertheless, the procedural reforms did not include legal standing for third parties and the substantive reforms did not add enough textual authority for articulating their interests nor sufficient methodological instructions for the arbitrators on how to respond to those. The EU’s approach refrained from taking a clear stance on many of the debates identified as counter movements in Chap. 4. However, as demonstrated in Chap. 4, making the current investment regime compliant with non-discriminatory human rights protection may require recalibrating certain provisions as well as their systemic interrelations and to reassess the impact of the regime as a whole. Reviewing the approaches adopted by the EU so far, it is not discernible how the obligation to integrate human rights protection and promotion was actually operationalized in the investment policy making cycle. Part III therefore proposes to reform the participation in the investment regime from a different angle. Those reforms are legally possible and to some extent even required and could help overcome the deeply rooted bias. Instead of the current EU approach, Part III focuses non-litigation methods that enable access to the law making and therefore to the contestation of such. Therefore, the proposals in Part III are not to be seen as a substitute to the current reforms nor for the still existing need for legal remedy; but rather as complementary methods that might reinforce the former. This approach is based on the conclusion that in light of the multiplicity of human rights threats, it seems essential to establish institutions that can reach out to the interests and experiences of deprivation of the previously disregarded which currently face difficulties in being recognized by all relevant actors in investment arbitration.

Chapter 4

Tensions Between the International Investment Regime and Human Rights: A Regulatory Tilt?

Abstract This chapter aims to demonstrate that IIL privileges certain interests at the expense of others. Human rights interests are for the most part excluded although this regime is often affecting them. This fact might be explained as a natural result of fragmentation of international law, but it is not justifiable from an EU constitutional law perspective. The tensions between human rights and the international investment regime are complex, a product of multiple interactions, systemic and often remain concealed. This chapter therefore approaches the identification of this regime’s stance towards human rights law on several levels. The introduction (Sect. 4.1) explains why this approach is important. The next section gives an overview of the coming into being of today’s investment regime (Sect. 4.2). Subsequently, this chapter analyses the human rights tension arising from the most common formulations of investment protection provisions and their interpretation by arbitral awards (Sect. 4.3). This includes a discussion of the progressive approaches within the investment regime, which can be observed in arbitral practice or have been advocated by the literature. It explores to what extent such approaches are mitigating some human rights concerns. Further, this chapter outlines the threats to human rights protection which cannot be determined by direct clashes of conflicting international obligations but are rather an indirect effect of the ‘multilateralization’ of investment treaties and its linkage to investor-state-dispute-settlement (ISDS) (Sect. 4.4). The chapter concludes (Sect. 4.5) that many frictions with human rights are not even identified in arbitration, human rights law is rarely perceived as applicable or human rights violations remain concealed. The isolated attempts of human rights integration in the arbitral practice and as proposed in the literature are often methodologically inconsistent and instable as they lack clear textual legitimacy. The need for including affected rights-holders to represent their interests becomes clear, while the right legal tools for such inclusion are still missing.

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4.1 Introduction First of all, it is important to analyse the common formulations of the standards that form the fundamental part of substantive investment law, their development through arbitral practise and how the substantive law responds to human rights arguments. Next to mapping out the status quo, it is, secondly, important to understand how the regime evolved. Only looking at the current EU approach and therefore only one point in time would not demonstrate the to some extent autonomous dynamics of this regime, the repercussions of reforms induced by individual actors as well as their limits. Third, it is essential to discuss the proposals put forward in the literature for mitigating human rights tensions from within the system, that are claimed to be either already textually possible or are being observed in arbitral practice, which could therefore speak against an inherent bias of the regime. Fourth, in order to rebut the adequate objection that this regime is deliberately only concerned with sectoral interests, it is important to shed light on how the adjudication and enforcement mechanism operate and discuss why they in effect override human rights protection. This chapter is aiming to do all of that by reviewing the literature that critiques the current international investment regime. Moreover, this chapter builds on a comprehensive study of all publicly available arbitral proceedings until 2017 in which human rights violations either played formally a role or were part of the factual context.1 This includes those cases that have featured prominently in the scholarly or public debates and those of which human rights relevance can be assumed based on reports in the media or by civil society organisations (CSOs). Further, in light of the difficulties to access or even to know about many investment arbitration proceedings, also potential clashes are discussed. The analysis of cases is essential because it gives insights into how the regime operates, what the avenues for intervention are and what arguments have been influential in arbitral decision making (e.g. from precedent, scholarship, interpretation declarations and public protest) and which have been ignored. It allows to more thoroughly assessing the many assumptions that have recurred in the public debates.

4.2 O verview of the Emergence of International Investment Law The proliferation of international investment agreements (IIAs) and the emergence of an international law regime are best explained from an historical perspective, which is briefly sketched out here.2 International investment law (IIL) as it is 1 This survey includes 50 cases in which all or most of the documents were available. The results of this survey have been published here, Kube and Petersmann (2018). 2 The term sub-regime is not used here as it implies a hierarchical placement within in public international law which is in fact much disputed.

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understood today can began when bilateral investment treaties (BITs) as inter-state agreements were combined with private enforcement and over time discovered as a powerful tool for corporate investors. What is now seen as the basic structures of the system—i.e. that private investors can directly invoke rights of an international agreement before a designated arbitration system that scrutinizes domestic state action—only emerged within the last two decades and concomitantly its legitimacy crisis. Today, multiple rationales are given for maintaining a global system of investor protection ranging from foreign investment being a development tool for that it promotes good governance and the rule of law in the host country to being a necessity for boosting the own economy, ensuring global competitiveness, increasing productivity and setting up global supply chains.3 Basing foreign direct investment (FDI) regulation on the latter rationale means that investment regulation is first and foremost directed at creating the most favourable conditions and creating a ‘business friendly climate’, e.g. by ‘neutralizing’ differences in legal systems.4 Despite the growing resistance in Europe, Canada and the US, isolated incidents of drawbacks in Latin-America and South Africa, the number BITs and IIAs continues to grow.5 That is between developing countries (South-South BITs) and between developed countries and regions (North-North BITs). In view of the diverse motives that are invoked for maintaining, upgrading and propagating investment protection agreements today and the diverse criticism pointing to the inefficiencies of today’s investment regime to meet these objectives, the question arises what initially started the rise of this system. Therefore, this section sketches the main narratives of the development of IIL. Joost Pauwelyn’s comprehensive historical overview depicts IIL as we know it today as an ‘accidental evolution’ of many insidious steps that ultimately convoluted in this ‘hybrid’ of commercial style arbitration, private contract law and international public law and which therefore allows for seeing this outcome or elements of it as pathological rather than as a deliberate choice of states.6 He looks for the starting point of foreign investor protection in the responses adopted to meet the challenges with maintaining inter-state economic relations during the beginning of the Westphalian state model in 1648. Crossing borders was risky since that meant subjecting personal integrity and possession to the mercy of the territorial sovereignty of a different state with possibly different rules and while having almost no rights as 3 Salacuse lists the different objectives of investment treaties, Salacuse (2015a), pp. 125–130. The Commission stresses the importance of FDI for boosting the EU economy, European Commission (2010) Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, Towards a comprehensive European international investment policy, COM(2010)343 final., p. 4. 4 For instance, see the explanation by DG Trade Commissioner Rupert Schlegelmilch in a public debate on 23 November 2015, https://www.tni.org/en/article/does-the-eus-investment-court-system-put-an-end-to-isds. Accessed 14 March 2019. 5 UNCTAD, World Investment Report 2017, UNCTAD/WIR/2017, June 2017, p. 111. 6 Pauwelyn (2014), pp. 19–20; The majority within the literature subscribes to the narrative that IIL grew as an ‘organic system’ instead of being based on one clear choice, see e.g. Brown (2015).

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an alien. In case of mistreatment of an own national abroad, the settling of such a conflict was mainly a question of power and force.7 After having exhausted diplomacy, the only means available were reprisal on foreigners or suspense of trade and political cooperation. Commercial cross-border relations could only flourish when mutual assurances where in place which were soon concluded in the form of agreements on granting of safe passage, access and establishment. To further juridify disputes, they were substantiated by conflict resolution mechanisms such as special courts and commissions. Further, rules on minimum standards of protection of aliens and diplomatic protection evolved and became international custom.8 However, the existence and the content of customary rules on compensation for expropriation were highly contested and could not serve as a reliable guarantee for protection.9 From the beginning, detaching commercial disputes from political relations was the main intention behind commercial inter-state agreements. Regulating protection of property and business interests abroad was first pursued by so-called treaties on friendship, commerce and navigation (FCN treaties) led by the US and the UK.10 They usually included most-favoured-nation (MFN) treatment, right to protection and security, national treatment, right to access to the territory and the judicial system and were mostly concluded between developed states.11 The beginning of the twentieth century, upset by wars, economic crisis and ideological cleavages, saw a revival of protectionist policies and large-scale waves of expropriation which fundamentally destabilized the trust within the international community towards the protection of foreign property.12 Further, in times of decolonization, the need emerged to protect home companies that remained in developing countries and to secure the commercial relations established by colonial trade. The FCNs after the Second World War—in light of the disagreement on international customary law—expanded their substantive scope to cover minimum standards of treatment, the obligation to compensate for expropriation and exchanged privileges of access, coming close to the standard catalogue of today’s BITs.13 At that time, state regulation of investment protection had little to do with the protection of individuals but was chiefly about states defending their interests and regulating their relations. The legal status of private actors was regulated on domestic level. Home states established insurance schemes for non-commercial risks and commercial actors entered into contracts and concessions with the capital-importing country which often was linked investorstate arbitration.14 Pauwelyn (2014), p. 20. Ibid., p. 21. 9 Salacuse (2015a), p. 72; For a more extensive view on what constitutes international customary law, see Lowenfeld (2003). 10 Brown (2015), p. 157. 11 Vandevelde (2010), pp. 21–23. 12 Ibid., p. 34. 13 Pauwelyn (2014), p. 25. 14 Ibid., p. 25. 7 8

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As multilateral attempts to establish a treaty on the protection of foreign property failed, Germany concluded the first BIT with Pakistan in 1959 on the basis of the proposals Germany introduced to the international negotiations.15 The innovation of the so-called (European) first generation of BITs was the inclusion of an umbrella clause, which elevated private contracts and concessions concluded between an investor and the host state to a matter of international public law. Apart from that, it is asserted that the first Model BITs were supposed to codify and lock in general principles of law.16 This first generation is described as a one-way street as mainly North-South BITs were concluded between newly independent states being in need for capital and Western countries aiming for asserting themselves against the Communist world.17 In light of the disagreement on substantial matters, the World Bank launched negotiations on institutionalizing commercial style arbitration for investment disputes (which included party appointed arbitrators, non-public proceedings, quick and final decisions and a focus on compensation than on compliance) with the International Centre for Settlement of Investment Disputes (ICSID) convention. It was promoted as a flexible system with optional arbitration and as such recommended by UNCTAD to initially reluctant developing countries.18 The main trait of being a merely procedural, opt-in system diminished, however, when this system was coinciding with the second generation of BITs in the 1980s. They included an ex-ante consent to arbitration by the states, which was later interpreted as only requiring the investor’s acceptance to bring a case before an arbitration tribunal. While at the same time more countries acceded to ICSID, the second-generation BITs and the approval of the ex-ante consent by arbitral practice ‘neutralized the ICSID flexibilities’, as Pauwelyn describes it.19 The stepping-stone for turning IIL into the powerful tool for corporate investors is commonly seen in the case of AAPL v Sri Lanka in 1990.20 Next to confirming the ex-ante consent, the tribunal in AAPL v Sri Lanka also opened the door for the unprecedented possibility for an investor to directly rely on a breach of the BIT instead of the contractual relations.21 Pauwelyn For an analysis of the Abs-Shawcross Draft Convention that Germany introduced to the OECD negotiations and which serves as a base for Germany’s first BIT, Brown (2015), pp. 163–167, 177. 16 Pauwelyn (2014), p. 25. 17 Ibid., pp. 23–24. 18 Puig (2012), pp. 541–542. 19 Pauwelyn (2014), pp. 27–31. 20 ICSID, Asian Agricultural Products Ltd. v. Republic of Sri Lanka, Award, Case No. ARB/87/3, Judgment of 27 June 1990. In AAPL v. Sri Lanka, a UK investor invested in a public shrimp culture farm, which was destroyed by Sri Lankan security forces because the farm was suspected to be a hide away for local rebels. 21 Art. 8(1) of the BIT which was invoked as expressing Sri Lanka’s consent to ICSID arbitration provides: “1. Each Contracting Party hereby consents to submit to the International Centre for the Settlement of Investment Disputes (hereinafter referred to as ‘the Centre’) for settlement by conciliation or arbitration under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States opened for signature at Washington 18 March 1965 any legal disputes arising between that Contracting Party and a national or company of the other Contracting Party concerning an investment of the latter in the territory of the former.” 15

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questions whether this far-reaching impact was ever foreseen during the ICSID convention negotiations.22 In sum, incrementally a system developed in which private investors can invoke broadly phrased treaty rights before an arbitration tribunal without the need of a special contract between the host state and the investor and without the requirements of usual domestic procedural rules that apply for other non-state actors such as exhaustion of local remedy. The expansionist interpretation of treaty rights essentially enables eligible investors to sue states for any kind of state action that is to the detriment of their profit. Arbitrators review state action on the basis of good governance standards that developed over time mainly by arbitral practice and without previous possibilities for domestic correction and subsequent possibility of review.23 Such direct claims have previously only existed in reparations and mixed claims that were established to remedy specific events such as war or mass violations of property rights.24 A permanent access to arbitration that is unlimited in time and general in scope but only foreseen for a specific group of non-state actors is in contrast an innovation. As described above, de-politicization of commercial and economic conflicts was the main aim behind establishing specific protection for foreign investors. Only later, the international investment regime was described in terms of being beneficial for development through the dissemination of know-how, technology and managerial skills and by creating jobs, increasing purchasing power and competition. Empirical studies have come to diverging conclusions as to whether foreign investment protection in fact stimulates investment inflows25 and as to whether investment inflows contribute to economic and social development of the host country.26 There is, however, consensus that positive effects highly depend on the specific economic situation of the host country as well as on the sector and the type of investment.27 Pauwelyn (2014), p. 31. ICSID annulment proceedings replace review of arbitral awards by domestic courts. Under the ICSID convention, States are obliged to recognize and enforce any award ‘as if it were a final judgment of a court in that State’, Article 54 (1) ICSID Convention. Art. 53(1) provides that the award shall not be subject to any appeal or to any other remedy except those provided for in the Convention. For non-ICSID awards, usually the New York Convention applies, which allows for domestic review on grounds of public policy, The Convention for the Recognition and Enforcement of Foreign Arbitral Awards, signed at New York on 10 June 1958 (189) (‘the New York Convention’). 24 Van Harten (2007), pp. 98–99. 25 See for an overview of studies that demonstrate diverging conclusions and that recently the majority points to a positive impact of BITs on investment flows Colen et al. (2013a), pp. 130–134; See for earlier studies with mixed outcomes, Sauvant and Sachs (2009). 26 See for an overview of empirical studies that range from stating that FDI causes a race to the bottom to it facilitates a rise to the top, Colen et al. (2013b). 27 E.g. Investment in the primary industry (e.g. mining) often operates in ‘enclaves’ without many linkages the host states’ economy and hence limited potential to contribute to its growth. Similarly, merger and acquisitions bring about little new interaction with the host state economy as they mainly consist of financial assets being transferred from domestic to foreign shareholders. In contrast, the manufacturing industry has been proven to be linkage-intensive and having the potential of creating new jobs. For an overview of the different factors, see Colen et al. (2009), p. 200. 22 23

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Despite the ambiguous outcome of empirical studies, the conclusion of investment protection treaties became a firm component of the development package promoted by the World Bank, the International Monetary Fund and other development and donor institutions ever since the Washington consensus.28 The conviction that FDI access and protection is as crucial part for including developing countries into the global economy is operationalized by conditioning loans and financial instruments upon the conclusion of FDI agreements.29 Ultimately, the possibility for state intervention is considerably constraint for both the host and the home state. Host states cannot sue investors under conventional BITs, whereas under ICSID home states lose their right to diplomatic protection (Art. 27 ICSID). The latter consequence enshrines a further imbalance into the system. Whereas investor with sufficient resources can launch ISDS proceedings, small investors with fewer resources lose the chance for diplomatic protection and may only rely on human rights convention.30 From this incremental development that experienced major leaps forwards by some crucial arbitral interpretations, many observers infer that developing countries and possibly developed countries rather tumbled by accident into ISDS and BITs as they are used today.31 On the other hand, subsequent (second-generation) BITs deliberately followed that path by explicitly including a linkage to ISDS. Moreover, IIAs and BITs continue to be concluded. After the high point in the 1990s with over 200 BITs and IIAs concluded only in 1996, the total number amounts today to approx. 3300 BITs and investment chapters in trade agreements. In 2016, 37 new IIAs were concluded, more than one every other week.32 Yet at the same time, the recent years also reflect an era of contestation and reform. Many Model BITs were revised, joint interpretations adopted and existing treaties were amended or renegotiated.33 In 2016, investors launched 62 known cases against states, while developed-country investors brought the vast majority of cases, increasingly also against developed states.34 Whether the latter fact validates the claim of IIAs having the benefit of putting all states on an equal footing and neutralizing trade power

The Washington consensus is a commonly used term describing the neo-liberal policy prescriptions agreed on by International Monetary Fund, World Bank, and the US Treasury Department during the 1980s which were summarized by the economist Williamson; for a critical appraisal, see Williamson (1996). 29 David Schneiderman reproduces how the World Bank imposed the adoption of a specific privatization plan for Bolivia’s water and sanitation services, which ultimately led to the Aguas del Tunari v. Bolivia case—a case that was accompanied by fierce public outcry over the negative effects the acquisition of the water permits by a foreign investor had on the local population’s right to affordable water. Schneiderman (2013), p. 97; Aguas del Tunari, SA v Republic of Bolivia ICSID Case No. ARB/02/3, filed in 2002 and settled in 2005. 30 Pauwelyn (2014), pp. 38–39. 31 Ibid., p. 34 with further reference to; Poulsen (2011), Sornarajah (2010), p. 173. 32 UNCTAD, World Investment Report 2017, UNCTAD/WIR/2017, June 2017, p. 111. 33 For an overview, see UNCTAD, National Treatment, 1999. 34 UNCTAD, World Investment Report 2017, UNCTAD/WIR/2017, June 2017, p. 114. 28

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asymmetries as Pauwelyn claims35 remains questionable. Most claimants still come from developed countries.36 As of 2014, they have initiated 608 publicly known arbitration cases—almost all of them after 1997.37 Due to limited transparency requirements, the total number of cases remains unknown. Further, tracing the ‘multilateralization’ of IIL shows that the convergence in substantial terms has been steered from the Global North to the Global South. Stephan Schill’s account is the first comprehensive overview of the different factors that led to a ‘de facto multilateralization’—as he termed it—of investor protection although formally being regulated by thousands of different and independent bilateral agreements.38 However, it is appropriate to note that also critical voices have been raised against the multilateralization thesis. Muthucumaraswamy Sornarajah dismisses it as part of the ‘neoliberal plan’ of establishing uniform principles of economic regulation.39 He stresses for example the existence of many variations of the classic protection standards across the different BITs. According to him, deviations from what is promoted as the common standards are therefore still possible and the multilateralization thesis is maintained to lock in current power distribution by creating a seemingly inflexible global system. David Schneiderman’s ‘critical approach to constitutionalism’ similarly argues that what is often praised as the constitutionalization of IIL is in fact the propagation of rules benefitting the most powerful economic actors.40 However, despite many but rather marginal variations, basic characteristics are shared amongst the thousands of BITs and IIAs such as the overall aim of protecting foreign investors, being linked to ISDS or reformed versions of arbitration and essentially similar standards. While not intending to decide this dispute at this point, for this chapter’s purpose it will be assumed that a holistic analysis of the different means and levels of international investment protection is necessary to understand its interactions, ways of proliferations and possible entry points for change without inevitably perpetuating a conception of an unchangeable and inflexible system. Variations of standards alone do not speak against conceiving international investment law as a global phenomenon and are to some extent naturalized in practice, for instance, by ‘treaty shopping’ and the MFN principle. This chapter therefore treats multilateralization as a historical description of the system’s emergence and not as a rigid characteristic and as reminder of its global interrelation while being cautious not to assume that European or Western standards are the ones constituting or determining global models. Further, a number of regional initiatives and multilateral agreements geared towards investment promotion contribute to the regional and sectoral convergence

Pauwelyn (2014), pp. 36–38. UNCTAD, IIA Issues Note: Recent Trends in IIAs and ISDS, 1 February 2015, p. 6. 37 UNCTAD, IIA Issues Note: Investor-State Dispute Settlement: Review of Developments in 2014, May 2015, p. 2. 38 See generally Schill (2009). 39 Sornarajah (2015), p. 250. 40 Schneiderman (2016), p. 26; Muchlinski (2011). 35 36

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of standards, such as the North American Free Trade Agreement (NAFTA),41 Energy Charter Treaty (ECT),42 Dominical Republic-Central American-United States Free Trade Agreement (DR-CAFTA)43 or the MERCOSUR Investment Protocol44 to name a few. Different factors that led to that convergence have been discussed in scholarship. Schill explains the homogeneity partly by its roots in international customary law and by the previous agreements that were achieved in multilateral treaty negotiations that ultimately failed but nevertheless left behind a harmonized BIT program.45 On the other hand, the failures of these multilateral agreements show the level of contestation on an international level. Other scholars have therefore explained the ultimate diffusion of substantive standards regardless of prior contestations by negotiation asymmetries leading to North-South BITs being essentially based on the capital-exporting countries’ model.46 In fact, the European Model BITs, which are essentially similar, were the first to be launched and therefore have probably inspired the many followers.47 Multilateral organizations such as United Nations Conference on Trade and Development (UNCTAD) also contribute to international convergence by issuing policy and negotiation recommendations based on research of best practices; research that many developing countries cannot conduct due to the lack of the resources.48 Further, MFN clauses that are included in almost all IIAs, lead to additional multilateralization and convergence of substantive law. Ultimately, the most favourable standards prevail and are applicable to all other treaty partners and their investors when such a clause is included.49 The space for diverging and specific bilateral arrangements is therefore considerably neutralized when a MFN clause is included.50 Depending on the precise formulation and prevailing practice, MFN NAFTA is a comprehensive trade and investment agreement between Canada, US, Mexico, which entered into force in January 1994. 42 The ECT is a multilateral framework that regulates transnational trade, transfer and protection of investment in the energy sector. It includes state of the art investment protection plus reference to ICSID. It entered into force in April 1998. 43 DR-CAFTA is a comprehensive free trade agreement between the US and Central American states such Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, as well as the Dominican Republic. It includes state of the art investment protection provisions and linkages to ICSID. It entered into force in 2007 with the Dominican Republic joining in 2012. 44 The MERCOSUR Investment Protocol was signed in January 1994 by the MERCOSUR Member States. 45 Schill (2009), pp. 89–93; Brown (2015), pp. 161–175. 46 Arguing in favour Guzman (1997), Benvenisti and Downs (2007), Kumm (2015), pp. 5–6; Arguing against Schill (2009), pp. 99–106; Salacuse (2015a), p. 104. 47 E.g. the Model BITs of Canada, the Netherlands, the United States, France, Norway, Germany and the United Kingdom, see Paparinskis (2012), pp. 489–582. 48 This seemed to be the consensus amongst the developing countries attending the (2016) UNCTAD Expert Meeting on Taking stock of IIA Reform. 49 Schill (2009), pp. 121–196. 50 Ibid., p. 122. 41

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clauses in essence allow investors to pick and choose the preferred substantive terms, design their preferred admissibility criteria51 and refer to the most beneficial rules on calculating compensation.52,53 The linkage of most IIAs to uniform procedural and enforcement rules such as the ICSID Convention54 and UNCITRAL Arbitration Rules55 (procedural rules that may be applied for ad hoc arbitration) and to international enforcement mechanism such as the New York Convention56 also led to a convergence of procedural rules which also shape the substantive law making. For understanding the crucial role, the procedural set up plays for turning isolated agreements into a ‘global legal system’, scholars have started to analyse the main actors, the self-declared ‘investment community’,57 from a sociological and socio-cultural perspective. Yves Dezalay and Bryant Garth were the first to bring the attention to problem of international arbitrators coming from one ‘epistemic community’.58 Based on network-analysis informed by comprehensive empirical data, Sergio Puig’s study was able to prove that international investment is in fact dominated and ‘heavily dependent on a small number of socially prominent actors’.59 In addition, a study by the Organisation for Economic Co-operation and Development (OECD) from 2012 revealed that the majority of cases is decided by core-group of arbitrators, e.g. 12 individuals decide 60% of all cases worldwide.60 The use of precedents plays a major role in the convergence of the substantive norms unfettered from textual limitations. However, when links to other treaties are absent and this specific method of interpretation is not explicitly mentioned, there is only little legitimate base for applying precedents.61 This is probably one factor that explains why, as Moshe Hirsch’s study reveals, arbitrators formally reject precedent

ICSID, Emilio Agustín Maffezini v. The Kingdom of Spain, Decision on Jurisdiction, Case No. ARB/97/7, 25 January 2000, paras 55–64. 52 UNCITRAL, CME Czech Republic B.V. v. The Czech Republic, UNCITRAL, Final Award, 14 March 2003, para. 500. 53 Sornarajah (2015), p. 185; Douglas (2011). 54 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, formulated by the Executive Directors of the International Bank for Reconstruction and Development (the World Bank), entry into force 1966. 55 UN General Assembly Resolution 31/98 Arbitration Rules of the United Nation Commission on International Trade Law adopted in 1979 with the 2013 version including the UNCITRAL Rules on Transparency for Treaty-based Investor-State Arbitration. 56 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958). 57 Hirsch (2014), p. 147. 58 Dezalay and Garth (1996). 59 Puig (2014), p. 423. 60 OECD, Investment Division Investor-State Dispute Settlement—Public Consultation (16 May–9 July 2012), para. 120; Another study shows that the same 15 arbitrators have decided 55% of all known cases (450) until the publication of the study in 2012, Eberhardt and Olivet (2012), p. 38. 61 Note that according to Article 38 ICJ statue, judicial decisions are only a subsidiary source for international law. 51

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while de facto importing previous interpretations of other ISDS tribunals—often based on references to international customary law or general principle of law.62 The formal rejection but de facto acceptance leads to the objectionable situation that dissents and deviations are not always openly discussed. The acceptance of precedents only seems to work on the horizontal level meaning with regards to other ISDS tribunals, notwithstanding the jurisprudence of the International Court of Justice.63 Jurisprudence of international human rights bodies, for instance, is not accepted as precedent; instead interpretation methods and substantive outcomes are imported selectively often not in legal terms but as ‘inspirations’ or ‘factual background’.64 Further, Hirsch asserts in his socio-cultural analysis that the social norms shared by this elite group of arbitrators also play a major part for generating a jurisprudence constante.65 He explains the influence of the social environment on jurisprudence partly by social deviance theory according to which behaviour is to some extent determined by peer-pressure66 and partly by the socio-cultural cohesion amongst arbitrators that, as his study demonstrates, share similar backgrounds, education and mentalities and underwent similar socialization processes.67 As to the litigators, Sornarajah sees an important factor in the globalization of law firms, which enables a close bond of individuals to litigate across the globe and proliferates similar litigation strategies across different legal cultures.68 The private law background of the vast majority of arbitrators and litigators explains why IIL is characterized as a ‘hybrid’, thereby justifying a system that applies private and especially commercial law rationales to regulatory relationships between states and the individual and thus in fact operating as a public law system.69 To sum up, to understand how international investment regulations governs on different levels (BITs and IIAs, arbitration, domestic legislation, multilateral frameworks for policy developments) state action, it was necessary to revisit how the different instruments developed, how they proliferated and how they were and are still interacting. The rationales behind inter-state agreements on investment liberation and protection were originally different than the ones invoked today. Whether ‘accidental’ or not, from de-politicizing commercial inter-state disputes to promoting economic and social development and the rule of law by incentivizing investment inflow, it was an incremental development. The interpretations of arbitrators played a major role in this transformation. Decisions which are until today con-

Hirsch (2014), pp. 158–162. Ibid., pp. 162, 166. 64 This observation is based on a comprehensive review of arbitral awards, Kube and Petersmann (2018). 65 Hirsch (2014), p. 163. 66 Ibid., p. 164. 67 Ibid., pp. 152–158. 68 Sornarajah (2015), p. 196. 69 Van Harten (2007), pp. 46–71. 62 63

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tested were the bedrock of a system that enables foreign investors to sue states for breaches of a broad set of rights enshrined in an international treaty by following private and commercial law rationales. The designated tribunals review state action according to governance standards that were developed on the basis of these treaty rules and that only to a limited and varying extent take into consideration public law, such as domestic constitutional, public international and human rights law. This system seems to function in similar ways across all international relations, despite its decentralized structures. That does not mean that it is inflexible or that only certain forces are dominating—quite the contrary perhaps. Because it is an organic system, as Pauwelyn predicts, it might even be more flexible and more open to unilateral initiatives for innovations and reforms and the incorporation of specific needs in contrast to the deadlocks experienced at WTO or UN level.70 Any actor participating in international investment regulation and especially when being a major trade power has to take into account that any interventions—reforms as well as abstaining from reforms—will have repercussions for the directions that this global regime will take—even without a multilateral agreement. Each decision must therefore be assessed in this global context.

4.3 S ubstantive International Investment Law: The Investor Privileges Although the precise content may vary depending on the respective IIA and its legal context (i.e. the preamble, declarations made by the state parties as well as other agreements between the state parties), common trends and understandings are clearly identifiable. Further, the room for divergence in single agreements is limited as many factors led to the emergence of autonomous principles. Next to demonstrating the tensions, each section discusses the developments towards more openness to human rights claim that have been proposed in the literature or adopted by some tribunals (‘counter movements’). These sections show that in relation to the overall pattern of exclusion, these mitigating efforts are marginal, because they remain isolated attempts, they lack consistency and often a legitimate base for the methodology applied. The legal transplants from human rights law are often flawed and more over selective (as tribunals have been more inclined to integrate the human rights to property or procedural human rights than other such as indigenous peoples’ rights or social rights). In light of the autonomous development of many standards that was already indicated in the historical account above, such internal attempts of human rights inclusion appear particularly volatile and are far from guaranteeing respect towards affected but previously ignored human rights interests.

70

Pauwelyn (2014), pp. 17, 42.

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Usually, investors invoke several provisions as most of them developed to largely cover the same subject matter. Nevertheless, the origins and the structure of each of these standards still differ in some respects and likewise the approaches to establish inroads for human rights arguments. It is therefore important to look at them separately.

4.3.1 Scope of Protection The definition of investment is of a twofold relevance. Only activities covered by the definition are eligible for the protection offered by an IIA and fall under the jurisdiction of the dispute resolution mechanism referred to in the IIA.71 There is no uniform definition on international level and the attempt to formulate such in the framework of the ICSID Convention failed.72 The literature has identified two approaches: An asset-based and closed-list based approach, both constituting positive lists.73 The majority of treaties applies an asset-based definition, defining an investment as ‘every kind of asset’ while including an exemplary list. The 2004 Model Netherlands BIT is a good example. Article 1 reads: (a) the term “investments” means every kind of asset and more particularly, though not exclusively: (i) movable and immovable property as well as any other rights in rem in respect of every kind of asset; (ii) rights derived from shares, bonds and other kinds of interests in companies and joint ventures; (iii) claims to money, to other assets or to any performance having an economic value; (iv) rights in the field of intellectual property, technical processes, goodwill and know-how; (v) rights granted under public law or under contract, including rights to prospect, explore, extract and win natural resources.

Although, arbitral tribunals have not always been clear about separating the two levels, as will be discussed below. 72 Bischoff and Happ (2015), pp. 504–505. 73 Ibid., pp. 500–501. 71

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A more restrictive option is the closed list of assets that constitute an investment such as in NAFTA, Article 113974 or the 2004 Canadian Model BIT, Article 1.75 4.3.1.1 Tensions with Human Rights First, the legal interests protected by the international investment regime diverge in many ways from the balance of rights that is enshrined in the protection of property guaranteed by many national constitutions and human rights conventions.76 In essence, investment protection under IIL—although covering essentially similar subject matters than property rights under human rights law—is based on the premise that public policy interventions constitute breaches that need to be justified, which is explained in more detail in context of expropriation protection. The human right to property in contrast gives special weight to the public interest in that it usually subordinates the use of property to regulation in the public interests and justifies interferences such as (indirect) expropriations in the public interest under certain circumstances.77 Further, it grants the right to everyone.78 In addition, the common inclusion of indirect relations (‘every kind of asset that an investor owns or controls, directly or indirectly,’) enables investment protection to transcendent the corporate veil which stands in contrast to the limitations of liability under domestic company and tort law.79 This expansion creates a situation in NAFTA, Article 1139 states: ‘[…]investment means: (a) an enterprise; (b) an equity security of an enterprise; (c) a debt security of an enterprise (i) where the enterprise is an affiliate of the investor, or (ii) where the original maturity of the debt security is at least three years, but does not include a debt security, regardless of original maturity, of a state enterprise; (d) a loan to an enterprise (i) where the enterprise is an affiliate of the investor, or (ii) where the original maturity of the loan is at least three years, but does not include a loan, regardless of original maturity, to a state enterprise; (e) an interest in an enterprise that entitles the owner to share in income or profits of the enterprise; (f) an interest in an enterprise that entitles the owner to share in the assets of that enterprise on dissolution, other than a debt security or a loan excluded from subparagraph (c) or (d); (g) real estate or other property, tangible or intangible, acquired in the expectation or used for the purpose of economic benefit or other business purposes; and (h) interests arising from the commitment of capital or other resources in the territory of a Party to economic activity in such territory, such as under (i) contracts involving the presence of an investor’s property in the territory of the Party, including turnkey or construction contracts, or concessions, or (ii) contracts where remuneration depends substantially on the production, revenues or profits of an enterprise; but investment does not mean, (i) claims to money that arise solely from (i) commercial contracts for the sale of goods or services by a national or enterprise in the territory of a Party to an enterprise in the territory of another Party, or (ii) the extension of credit in connection with a commercial transaction, such as trade financing, other than a loan covered by subparagraph (d); or (j) any other claims to money, […]’. 75 In the 2004 Canadian Model BIT, Article 1, the definition of investment is phrased essentially similar as in NAFTA, Article 1139. 76 See, general Cotula (2015). 77 E.g. UDHR, Article 17; Article 1 of protocol 1 ECHR, Article 17 CFR. 78 See, e.g. Timmers (2013). 79 Dine (2005), pp. 43–65. 74

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which a parent company may sue a state for violating the rights of a subsidiary, which is protected under IIL as an asset of the parent company, while the liability under company law rests with each separate legal entity allowing the parent to escape any legal consequences resulting from misconduct of the subsidiary. IIL therefore expands the protection of multinational companies without imposing any corresponding requirements for responsibility. This possibility of expanding chains of companies has been recognized by one tribunal as an issue of unpredictability. In Enron v. Argentina, the tribunal discussed (but not decided) whether a ‘cut-off point’ at some stage would more adequately reflect the extent that was foreseeable at the time the state parties gave their consent to arbitration.80 How far this scope of protection can be stretched to also cover several corporate layers or chains of companies hinges on what constitutes ownership or control. Most BITs are silent on this point.81 Some give indication by quantifying the shares that amount to ownership82 or by requiring some factual or legal circumstance that prove an ‘ability to influence’.83 This expanded protection from which especially larger multinational companies benefit is further increased by the practice of ‘treaty shopping’. Multinational companies by being able to engage in flexible corporate re-structuring or by already possessing multiple nationalities can choose the most favourable BIT for their claims.84 This practice diminishes reform efforts of single BITs and also allows domestic firms to use this venue. Next to the requirement for a foreign corporate investor to be constituted or organised under the domestic laws of the other party, additional requirements such as the need to have substantial business activities are sometimes included in order to prevent treaty shopping through the establishment of sham companies. In addition, the protection might expand even further through generous interpretations of jurisdiction-clauses. ‘Relating to an investment’ and ‘affecting the operation of an investment’ leaves considerable room for interpretation. First, in view of the tendency of arbitral tribunals to accept jurisdiction for any state measure that affects the ‘overall investment projects’, acts, claims and assets that viewed in isolation would not fall under investment protection, could nevertheless do so when they somehow relate to the overall project.85 In Chevron v. Ecuador I, for instance, an ICSID, Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, Decision on Jurisdiction, Case No. ARB/01/3, 14 January 2004, paras 52–57 (The tribunal did not decide on this question, because the claimant was specifically invited to invest.). 81 E.g. 2012 US Model BIT, 2008 Germany Model BIT, 2008 UK Model BIT, 2008 Mexico Model BIT, NAFTA, do not specify ownership or control. 82 E.g. Japan-Oman BIT, Article 1(d)(i); Canada-Thailand BIT, Annex 1(4). 83 E.g. Understanding No. 3 to the ECT, regarding definition of investment in ECT, Article 1(6). 84 E.g. in two intra-EU cases, the two claimants also identified Japan and Switzerland as “home states” which would grant them the protection of the ECT in case intra-EU ISDS is declared void; see Eurus Energy Holdings Corporation and Eurus Energy Europe B.V. v. Kingdom of Spain ICSID Case No. ARB/16/4; OperaFund Eco-Invest SICAV PLC and Schwab Holding AG v. Kingdom of Spain ICSID Case No. ARB/15/36. 85 Bischoff and Happ (2015), p. 517; ICSID, Ceskoslovenska Obchodni Banka, A.S. v. The Slovak 80

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investor’s claim of denial of justice as a principle of customary law (which was not based on the underlying BIT) was accepted as falling under the purview of the jurisdictional clause, because it was considered part of the “overall investment project”.86 The tribunal argued that because of the non-exhaustive list of protected assets, the provision’s purpose is precisely to close any gaps of protection which may arise when the initial investment assumes different shapes over time.87 Such interpretations demonstrate the unpredictability that comes with positive non-exhaustive lists. Further, the inclusion of debt instruments is likely to touch upon human rights concerns, especially in the context of debt restructuring. It allows creditors that oppose exchange offers with the indebted state but would still be bound by the sovereign debt restructuring process (due to the supermajority rule) to challenge the latter before ISDS tribunals and seek full repayment.88 What constitutes an investment in that regard has previously been interpreted very broadly to include the purchase of bonds on international financial markets without any direct territorial link to the host state.89 Furthermore, arbitral awards are generally covered unless mentioned in the negative list. This constitutes an attractive mechanism for investors that can potentially turn any award into an ICSID award which provides for better enforcement rules.90 The same is true for intellectual property rights that fall under the investment definition by offering an additional enforcement tool for investors. Generally international protection of intellectual property—such as on the grounds of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)—is not enforceable by individual right-holders.91 The additional protection for intellectual property rights creates human rights tensions beyond the procedural privilege. It is disputed whether the notion of intellectual property as commonly understood under IIL overlaps with TRIPS or whether an own category is created leading to further legal fragmentation.92 At any rate, also the definition adopted in IIL is likely to raise similar human rights concerns as those previously addressed under TRIPS but without the TRIPS flexibilities, in particular with regards to access to medicine and the right to health.93 The most well-known example is patent protection of pharmaceuticals which is raising the prices of such products and thereby secure the rewards for the Republic, Decision on Jurisdiction, Case No. ARB/97/4, 24 May 1999, paras 69–72; ICSID, Joy Mining Machinery Limited v. Arab Republic of Egypt, Award on Jurisdiction, Case No. ARB/03/11, 6 August 2004, para. 54. 86 UNCITRAL, Chevron Corporation (U.S.) & Texaco Petroleum Corporation (U.S.) v. Republic of Ecuador, Interim Award, PCA Case No. 34877, 1 December 2008, para. 180. 87 Ibid., para. 183; See, also Kube and Petersmann (2018), p. 229. 88 See, generally Viterbo (2014). 89 See, e.g. ICSID, Abaclat and Others v. Argentine Republic, Decision on Jurisdiction and Admissablity, Case No. ARB/07/5, 4 August 2011, para. 367. 90 Bischoff and Happ (2015), p. 540. 91 Grosse Ruse-Khan (2015), pp. 1708–1713. 92 See, generally Grosse Ruse-Khan (2015). 93 E.g. Petersmann (2015), Shaffer and Sell (2014), Joseph (2013), pp. 850–852.

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inventor. However, dramatic events in the past (like the HIV crisis in South Africa in 1990s) have shown that such a price raise in combination with the prohibition of producing generic medicine prevented the poorer part of the population to access life-saving medicine in time.94 A prominent recent incident in which investors relied on intellectual property protection is the Philip Morris saga against Australia and Uruguay which took place at several levels, i.e. before national courts, at the WTO (through other Members) and at investment arbitration level, following the adoption of tobacco control measures adopted by states in order to implement the WHO Framework Convention on Tobacco Control.95 Both ISDS proceedings were decided in favour of the state.96 Especially, the award in the Uruguay case presents a relatively progressive approach in human rights terms in that considerable weight was given to the protection of public health. It is discussed in detailed in the following section.97 Further, the inclusion of concession, licences, and other ‘public law rights’98 may create tensions between national administrative principles, which usually allow for withdrawal according to certain requirements, and the objective of IIAs to insulate such assets from domestic regulation. Hence, it has been claimed that for assets protected by the investment regime a system of ‘global administrative law’ developed that builds on its own terms that often do not correspond to the value choices made in domestic constitutions and human rights conventions.99 Usually non-profit organisations will not be covered by investment protection. However, non-governmental organization (NGOs) that have assets in other states such as schools, hospitals or technical assistance equipment may face similar risks of ill-treatment by host states as investors do.100 Especially NGOs that work on politically sensitive issues such as protecting civil and human rights defenders have in the past faced liquidation, imprisonment, destruction of property or denial of protection against third party violence.101 In some BITs non-profit investors are explicitly included.102 However, if that is not the case, NGOs usually fall short of the For a comprehensive overview of these events, see ’t Hoen (2009). See, generally Petersmann (2015). 96 UNCITRAL, PCA, Philip Morris Asia Ltd. v. The Commonwealth of Australia, Award on Jurisdiction and Admissibility [not yet public], Case No. 2012-12, 17 December 2015; ICSID, Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, Award, Case No. ARB/10/7, 8 July 2016. 97 Section 4.3.2.2. 98 Sornarajah (2010), p. 192. 99 See, generally Harten and Loughlin (2006). 100 Konrad (2015), p. 555. 101 The EU acknowledges the particular threat for human rights defenders and declared the protection of human rights defenders as one of its major priorities of its external human rights policy. See, the EU Guidelines on Human Rights Defenders (https://eeas.europa.eu/headquarters/headquarters-homepage_en/3958/EU%20Guidelines%20on%20Human%20Rights%20Defenders) and the European Union Human Rights Defenders mechanism (https://www.protectdefenders.eu/ en/index.html). Accessed 14 March 2019. 102 Such as the 2008 German Model BIT which covers investments ‘irrespective of whether or not the activity is directed at profit’. 94 95

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‘investment’ criterion. If one justifies the privileged protection of foreign investment by the positive impact it may have on the economic and social development of the host state, the exclusion of other transnational organizations that contribute to economic, social and human development facing similar risks as investors is hard to explain. 4.3.1.2 Counter Movements Two main entry points for human rights have been discussed in the literature. This is first the so-called clean-hands doctrine and second the proposal of making investment protection conditional upon a positive contribution to economic, social and human development. These general approaches could apply to all of the aforementioned forms of investment. However, this section shows that they have not yet gained traction in investment arbitration in relation to human rights, while even their basic premises remain contested within the literature and investment arbitration. The first approach links to the legality of an investment, which can be brought forward against the establishment of an investment as well as against the operation, and which would result in exclusion of an investment from protection. For instance, human rights considerations can lead to the illegality of an investment when the applicable law according to which the protected asset (e.g. rights derived from concession or production contracts) is constituted incorporates human rights (e.g. compliance with certain environmental standards). It remains controversial whether international law and human rights can play a role if they are not implemented in domestic law and whether post-establishment human rights abuses should be included since the definition usually only requires the investment to be ‘established in accordance with local laws’. The literature is divided on both of these aspects.103 First it is controversial whether any other source than the BIT should influence the definition of investment at all.104 The rationale behind IIAs is precisely to curtail the power of states in defining and change the very substance of an investment, independently of whether domestic law allows do to so. Richard Bischoff and Jan Asmus Happ therefore advocate an autonomous meaning of investment as derived from the BIT and general principles of law,105 while at the same time admitting the difficulty to create such autonomous understanding ‘out of the blue’106 and that Article 42(1) ICSID Convention includes an assumption for the host state law to be applicable. On the other hand, some of the supporters of the clean-hands doctrine argue that the require Dumberry and Dumas-Aubin (2012), pp. 362–368 with further references; See, generally Mitchell et al. (2015). 104 Arguing that domestic law should be a source for the definition, Dolzer and Schreuer (2012), p. 65; Arguing that only international law should be the proper source, Bischoff and Happ (2015), pp. 524–526. 105 Bischoff and Happ (2015), p. 525. 106 Ibid., p. 526. 103

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ment of lawfulness presupposes the compliance with human rights law or at least with the most fundamental human rights even in the absence of a specific treaty provision to that end.107 In investment arbitration, tribunals have also responded differently.108 In Phoenix Action v. Czech Republic, the tribunal noted that ‘nobody would suggest that ICSID protection should be granted to investments made in violation of the most fundamental rules of protection of human rights, like investments in pursuance of torture or genocide or in support of slavery or trafficking of human organs.’109 According to the tribunal, it found sufficient support in the case law to declare the clean-hands doctrine as a general principle of law.110 The Phoenix tribunal further stated, that ‘the protection of international investment arbitration cannot be granted if such protection would run contrary to the general principles of international law’ and that ‘this principle governs the relations between States, but also the legal rights and duties of those seeking to assert an international claim under a treaty.’111 One could understand this statement as indicating that certain obligations for investors can be derived from international law. This also finds support in the recent award in Urbaser v Argentina, in which the tribunal suggests a possible direct application of human rights obligation on investors while distinguishing between obligations to abstain from human rights violations, which could be directly applicable and obligations to perform, which are not.112 This case has generally received much praise for its progressive ruling in terms of human rights integration into investment arbitra-

Dumberry and Dumas-Aubin (2012), p. 365. E.g. in ICSID, Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, Award, Case No. ARB/03/25, 16 August 2007, paras 401–404 the tribunal rejected jurisdiction because the investment was established in breach of the local law; In ICSID, Inceysa Vallisoletana S.L. v. Republic of El Salvador, Award, Case No. ARB/03/26, 2 August 2006, paras 238–244 the tribunal stated that denying the benefits for fraudulent investment is required by fundamental principles of international public policy. In Hesham Talaat M. Al-Warraq v. Indonesia, the tribunal stressed the fact that the investor’s actions had been to the detriment of the public interest falls under the clean-hands doctrine, UNCITRAL, Hesham Talaat M. Al-Warraq v. The Republic of Indonesia, Final Award, 15 December 2014, para. 647; In Hamester v. Republic of Ghana, the tribunal also acknowledged that the clean-hands doctrine is a general principle of law, see ICSID, Gustav F W Hamester GmbH & Co. KG v. Republic of Ghana, Award, Case No. ARB/07/24, 18 June 2010, paras 123–124. 109 ICSID, Phoenix Action, Ltd. v. The Czech Republic, Award, No. ARB/06/5, 15 April 2009, para. 78. 110 Ibid., para. 100 with reference to supporting case law; ICSID, Plama Consortium Limited v. Republic of Bulgaria, Case No. ARB/03/24, 27 August 2008, paras 138–139; ICSID, Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, Award, Case No. ARB/03/25, 16 August 2007, paras 397, 402. 111 ICSID, Phoenix Action, Ltd. v. The Czech Republic, Award, No. ARB/06/5, 15 April 2009, paras 106, 107. 112 ICSID, Urbaser v. Argentina, Award, Case No. ARB/07/26, 8 December 2016, para. 1210; Kube and Petersmann (2018), pp. 236–137. 107 108

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tion.113 However, as it is discussed later, this case is also proof of continuous uncertainties and flawed argumentation.114 Tribunals have also disagreed as to whether the legality requirement is a continuous requirement or only applies to the establishment of the investment.115 The dominant approach appears to consider investors’ misconduct in the merits or when calculating the damages as it is discussed in relation to the protection standards.116 In addition, the practice of ‘forum shopping’ has been discussed as an abuse of rights that would exclude protection. However, tribunals have disagreed considerably by on one hand rejecting protection117 and on the other endorsing forum shopping as a legitimate practice of corporate planning.118 Another approach that has been discussed in scholarship is to limit the definition of an investor by conceiving the requirement of contributing to economic development of the host state as a constitutive element. In Salini, the tribunal relied on early scholarly works and the preamble of the ICSID Convention, when asserting that investment requires (1) a certain duration, (2) a certain assumption risk and (3) ‘the contribution to the economic development of the host state.’119 The so called Salini test has been upheld and rejected by subsequent tribunals as well as in legal scholarship.120 However, as Diane Desierto points out, even when any contribution to development is assessed as a requirement for an investment, arbitral practice has so Sujoy Sur (2017) Urbaser v. Argentina: Analysing the Expanding Scope of Investment Arbitration in light of Human Rights Obligations. In: EFILA Blog. https://efilablog.org/2017/05/02/ urbaser-v-argentina-analysing-the-expanding-scope-of-investment-arbitration-in-light-of-humanrights-obligations/. Accessed 14 March 2019. 114 Also sceptical of the progressiveness of this award, Crow and Escobar (2018). 115 For an overview of the case law, see Kube and Petersmann (2018), pp. 258–260; In favour of applying the legality requirement only to the admission phase, ICSID, Saba Fakes v. Republic of Turkey, Award, Case No. ARB/07/20, 14 July 2010, para. 119. 116 E.g., in Yukos arbitration, illegal tax avoidance measures by the investor were dismissed as an ‘unclean hands’ argument, but led to a reduction of awarded damages, UNCITRAL, Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, Final Award, PCA Case No. AA 227, 18 July 2014, para. 1633. 117 ICSID, Phoenix Action, Ltd. v. The Czech Republic, Award, No. ARB/06/5, 15 April 2009, para. 142; UNCITRAL, PCA, Philip Morris Asia Ltd. v. The Commonwealth of Australia, Award on Jurisdiction and Admissibility, Case No. 2012-12, 17 December 2015, paras 582–585. 118 SCC (Energy Charter Treaty), Isolux Netherlands, BV v. Kingdom of Spain, Final Award, Case V2013/153, 17 July 2016. 119 ICSID, Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, Decision on Jurisdiction, Case No. ARB/00/4, 23 July 2001, para. 52. 120 In favour, ICSID, Consortium RFCC v. Royaume du Maroc, Award, Case No. ARB/00/6, 22 December 2003; ICSID, Joy Mining Machinery Limited v. Arab Republic of Egypt, Award on Jurisdiction, Case No. ARB/03/11, 6 August 2004; ICSID, Saipem S.p.A. v. The People’s Republic of Bangladesh, Decision on Jurisdiction and Recommendation on Provisional Measures, Case No. ARB/05/07, 21March 2007; ICSID, Phoenix Action, Ltd. v. The Czech Republic, Award, No. ARB/06/5, 15 April 2009; Against, ICSID, Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, Award, Case No. ARB/05/22, 24 July 2008; ICSID, Malaysian Historical Salvors, SDN, BHD v. The Government of Malaysia, Decision on the Application for Annulment, Case No. ARB/05/10, 16 April 2009; Against Schreuer et al. (2009), Article 25, 121. 113

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far not referred to internationally well-entrenched norms of sustainable development121 but rather adopted an expansive notion of what accounts as a contribution to a state’s economic development in order to assume jurisdiction.122 For instance, according to the Abaclat tribunal, the issuance of Argentinian bonds contributed to Argentina’s economic development by generating funds that ‘served to finance Argentina’s economic development’.123 The standards of economic development developed by arbitral awards are therefore diverging from international concepts and mainly based on a case-to-case analysis without any overarching definition having yet emerged.124 In sum, both approaches for integrating human rights in the definition of investment have not gained traction in arbitral practice. Further, within investment arbitration as well as in the literature there is considerable disagreement as to the status of the clean-hands doctrine as a general principle of law, its ratione temporis as well as its relationship to human rights obligations.125 The proposal of making investment protection conditional upon its positive contribution appears to be an isolated attempt. Both proposals are unlikely to develop into reliable inroads for human rights without clear reforms of the treaty texts. Lastly, it is important to be reminded that tribunals have come to diverging conclusions as to whether the term ‘investment’ has an objective and independent element that stems from the ICSID convention and to what extent it is in the hands of the state parties to develop and decide their own meaning of the term.126 In light of this disagreement, one should be aware of the uncertainty that is unavoidable when the IIA is linked to ICSID. Tribunals may follow the objective interpretation based on ICSID and defend a certain level of independency from the parties’ intent. The same might be true when human rights are only integrated in domestic law that is defining the specific investment. The fact that tribunals understand the rationales of BITs as insulating definitions from the interpretative powers of states provides the The minimum definition of sustainable development as ‘development which meets the need of the present without compromising the ability of future generation to meet their needs’ is widely accepted, Gehring and Newcombe (2011), p. 6. This is also the definition the EU endorses, see Renewed EU Sustainable Development Strategy as adopted by the European Council on 15/16 June 2006, DOC 10917/06; see also UNCTAD‚ World Investment Policy Framework for Sustainable Development’ (2012). 122 Desierto (2013), pp. 246–247. 123 ICSID, Abaclat and Others v. Argentine Republic, Decision on Jurisdiction and Admissablity, Case No. ARB/07/5, 4 August 2011, para. 378. 124 Desierto (2013), p. 247. 125 Kube and Petersmann (2018), p. 260. 126 In favour of certain limits on the parties’ discretion: ICSID, Phoenix Action, Ltd. v. The Czech Republic, Award, No. ARB/06/5, 15 April 2009, para. 100; ICSID, Saba Fakes v. Republic of Turkey, Award, Case No. ARB/07/20, 14 July 2010, para. 108; ICSID, Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, Decision on Jurisdiction, Case No. ARB/08/8, 8 March 2010, para. 97; In favour of a greater role for the underlying IIA to determine the meaning of investment: ICSID, M.C.I. Power Group L.C. and New Turbine, Inc. v. Republic of Ecuador, Award, Case No. ARB/03/6 |, para. 159; ICSID, Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, Award, Case No. ARB/05/22, 24 July 2008, paras 312–318. 121

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legitimacy for elevating the content of the investment regime further from state control. Treaty makers should keep in mind that choosing flexible and broad definitions and formulation fuels the development of autonomous standards that might be hard to recapture decades later.

4.3.2 Protection Against Direct and Indirect Expropriation The protection against direct and indirect expropriation was originally the main pillar of investment protection.127 Despite the fact that expropriation has always been controversial in international law,128 the so-called Hull formula became the standard accepted in most BITs and upheld by arbitration as opposed to the Calvo-doctrine.129 The Hull formula130 requires the host state to pay immediate and full compensation in freely convertible currency to foreign property owners.131 In contrast to its original purpose of protecting against direct expropriation of property, under IIL, this protection standard developed its own dynamics to ultimately capture any state regulation that is devaluating the investment. The provisions in IIAs are phrased essentially similar in all state-of-the-art investment treaties.132 For instance, Article 13(1) in the ECT reads: Investments of Investors of a Contracting Party in the Area of any other Contracting Party shall not be nationalised, expropriated or subjected to a measure or measures having effect equivalent to nationalisation or expropriation (hereinafter referred to as “Expropriation”) except where such Expropriation is: (a) for a purpose which is in the public interest; (b) not discriminatory; (c) carried out under due process of law; and (d) accompanied by the payment of prompt, adequate and effective compensation.

This covers direct and indirect expropriation and measures tantamount or equivalent to expropriation.133 In arbitral practice, direct expropriation has been interpreted as the direct transfer of property in favour of the host state by means of a dministrative

Dolzer and Schreuer (2012), p. 1 et seqq. For the debate about the status of the Hull formula under international customary law, see Schachter (1984), p. 123; Asserting that at least nowadays the Hull formula constitutes international customary law, Hindelang (2004), p. 800; Rejecting BITs as international customary law, Dumberry (2009). 129 Dolzer and Schreuer (2012), p. 91; Sornarajah (2015), p. 193. 130 Cordell Hull, the US Secretary of State in the 1930s and 40s coined the Hull formula when he demanded ‘prompt, adequate and effective compensation’ for US landowners that were expropriated by the Mexican Government; See Salacuse (2015b), pp. 68–69. 131 Salacuse (2015a), p. 68. 132 Kriebaum (2007), p. 722. 133 Dolzer and Stevens (1995), p. 99; Kriebaum (2015), p. 967. 127 128

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or legislative act.134 Indirect expropriation may include any other state measure that severely interferes ‘in whole or in part with the use or the reasonably-to-be-expected economic benefits of the investment.135 This includes de facto expropriation, creeping and regulatory expropriation.136 However, the test for determining whether an expropriation occurred as well as the legal consequences do not differ depending on the type of expropriation.137 An expropriation is only not a breach of IIL when it occurred in a non-discriminatory way, for a public purpose, in due process and in return for full compensation.138 Since a direct or indirect expropriation without full compensation will thus always be illegal, it has been termed the ‘all-or-nothing approach’.139 Especially the earlier case law solely relied on the severity of the infringement.140 Tribunals have affirmed the equivalence to expropriation when a state measure has led to a ‘substantial’ loss of control or value or had a ‘severe’ or ‘significant’ economic impact of ‘permanent’ duration.141 Followers of the sole- effects doctrine explicitly advocated that the intent or motivation behind the adoption of a regulatory measure is irrelevant and should be ignored for deciding whether an expropriation occurred.142 The tribunal in Santa Elena, which became a major reference point, stated that [e]xpropriatory environmental measures – no matter how laudable and beneficial to society as a whole – are, in this respect, similar to any other expropriatory measures that a state may take in order to implement its policies: where property is expropriated, even for environmental purposes, whether domestic or international, the state’s obligation to pay compensation remains.143

Accordingly, all state action that is devaluating the investment would fall under the purview of an expropriation provisions and the arbitrators’ scrutiny. However, this approach became increasingly contested especially in light of the resulting clashes with domestic and other international legal systems. Some of them are dis-

ICSID, LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc.v. Argentine Republic, Decision on Liability, Case No. ARB/02/1, 3 October 2006, para. 187. 135 See, e.g. ICSID, Metalclad Corporation v. The United Mexican States, Award, Case No. ARB/97/1, 30 August 2000, para. 103. 136 Newcombe (2005), p. 10; For an overview of what constitutes what type of expropriation according to arbitral practice, see Kriebaum (2015), pp. 970–995. 137 Sloane and Reisman (2004), p. 121; Kriebaum (2015), p. 974; Stifter and Reinisch (2016), p. 85. 138 See, e.g. Reinisch (2008a). 139 Kriebaum (2007), p. 719. 140 Biloune & Marine Drive Complex Ltd v Ghana Investments Centre and the Government of Ghana, Award on Jurisdiction and Liability [1989] 19 B Comm Arb 11 1994 (UNITRAL); Metalclad Corporation v The United Mexican States, Award [2000] ICSID Case No. ARB/97/1, para. 111; For a more detailed discussion of the cases following these two approaches, see e.g. Dolzer and Bloch (2003), p. 155; Newcombe (2005), p. 1. 141 Kriebaum (2015), p. 983. 142 Dolzer and Bloch (2003), p. 158. 143 ICSID, Compañia del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, Final Award, Case No. ARB/96/1, 17 February 2000, para. 72. 134

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cussed below as well as the different ways that tribunals found to respond to emerging claims calling for a more adequate accommodation of public interests. 4.3.2.1 Tensions with Human Rights In Piero Foresti et al. v. South Africa, the investor challenged parts of the post- Apartheid legislation, the so-called Black Economic Empowerment policies. The Italian investors claimed in particular that the compulsory divesture of their rights to exploit quarries to the benefit of Historically Disadvantaged South Africans (HDSAs) to be in breach of expropriation protection. The International Commission of Jurists (ICJ) filed a petition to act as amicus curiae, in which they stressed that not only South Africa’s constitution but also fundamental and international obligations to non-discrimination and equality require South Africa to adopt affirmative action measures.144 The proceedings were discontinued as South Africa agreed to grant new mineral rights to the investors under certain conditions but without requiring them to sell 26% of their shares to HDSAs as it was previously defined in the legislation.145 Although, this was ultimately not decided, Piero Foresti v. South Africa illustrates the potential conflict: Can there be any legitimate expectation as to being insulated from legislative change pursing international and constitutional core human rights if even promised by previous governments? It also highlights the questionable role of the home state, that—as the ICJ petition aptly stressed—was also under a duty to international cooperation with regards to racial non- discrimination and which—one could argue—was not in a position to grand legitimate positions to private actors that impede the fulfilment of such most fundamental human rights. The Pezold case is an example of how the right of local marginalized groups are being violated but completely excluded from entering the dispute.146 Two European investors sued Zimbabwe on grounds of the German and Swiss BITs because they agricultural estates have been appropriated by the Zimbabwean government by constitutional amendment in an alleged effort to redistribute it to the previous farm owners.147 The Zimbabwean government extensively relied on many human rights ICSID, Piero Foresti, Laura de Carli & Others v. The Republic of South Africa, Award, Case No. ARB(AF)/07/01, petition for participation as a Non-disputing party pursuant to Article 41(3) of the ICSID Arbitration Rules by the International Commission of Jurists, 19 August 2009, para. 24. 145 ICSID, Piero Foresti, Laura de Carli & Others v. The Republic of South Africa, Award, Case No. ARB(AF)/07/01, 4 August 2010, para. 79. 146 ICSID, Bernhard von Pezold and Others v. Republic of Zimbabwe, Award, Case No. ARB/10/15, 28 July 2015; The Zimbabwe’s request for staying the enforcement has recently been rejected, ICSID, Bernhard von Pezold and Others v. Republic of Zimbabwe, Annulment Proceeding, Case No. ARB/10/15, 24 April 2017. 147 Hepburn J (2016) Part 1 of 5: In now-public 300+ page Zimbabwe ruling, ICSID tribunal ordered restitution of expropriated farms, as well as tens of millions in further damages. In: Invest. Arbitr. Report. https://www-iareporter-com.ezproxy.eui.eu/articles/part-1-of-5-in-now-public144

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arguments including margin of appreciation and proportionality, the absence of any contribution to the economic development by the investors and existing threats to natural resources. However, the human rights victims the Respondent state was mainly referring to, were the current political elite which were presented as the historically disadvantaged ‘liberation fighters’.148 The crackdown on the European investors by the Zimbabwean government was said to be motivated by racial discrimination,149 and to have included severe harassment and assassination plans by the Zimbabwean government of one of the claimants still residing in the country. This background prompted severe responses by the ICSID tribunal. It awarded compensation and moral damages, amounting to $200 million.150 Further, next to the unusual practice of awarding moral damages for both the natural and the judicial persons, it ordered restitution despite the presence of indigenous communities on the lands.151 These indigenous communities whose rights were said to be ‘fragile at best’ but who maintained that these lands are part of their ancestral territory remained completely neglected in the arbitral dispute.152 Admittedly, this was a complex case, especially in light of the Zimbabwe’s efforts to incite ‘settlers’ to occupy the farm land. However, the tribunal refused to admit an amicus submission by the representatives of the indigenous communities. This rejection is discussed in more detail below.153 Especially the award of restitution could be in direct breach with the internationally recognized human rights of indigenous people, such as the right to free, prior, informed consent and possibly other human rights as the indigenous communities’ economic livelihoods were allegedly depending on these lands.154 Next to the neglect of indigenous rights’, as it is the case with similar illegitimate mass scale expropriations, the discriminatory protection of property rights under IIL is also manifesting the disadvantage of local land owners.155 As Piero Foresti demonstrates, many states, both developed and developing, are in many respects under constant obligations to raise their human rights standards,156 to remedy historic injustices including by economic redistribution; obligation that may require fundamental legislative reforms, which in scope and pace mainly 300-page-zimbabwe-ruling-icsid-tribunal-ordered-restitution-of-expropriated-farms-as-well-astens-of-millions-in-further-damages/. Accessed 14 March 2019. 148 See, e.g. ICSID, Bernhard von Pezold and Others v. Republic of Zimbabwe, Award, Case No. ARB/10/15, 28 July 2015, para. 483. 149 Ibid., paras 648–657. 150 Ibid., paras 1020–1024. 151 Ibid., para. 730. 152 Cross and Schliemann (2012), pp. 3–5. 153 See, Sect. 4.4.2. 154 E.g. Article 10 of the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), UN General Assembly, 2 October 2007, A/RES/61/295, states: “Indigenous peoples shall not be forcibly removed from their lands or territories. No relocation shall take place without the free, prior and informed consent of the indigenous peoples concerned and after agreement on just and fair compensation and, where possible, with the option of return.” 155 Timmers (2013). 156 See, e.g. Article 2(1) of ICESCR.

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depend on political majorities. However, the curtailing effect of the non-expropriation standard on states’ right to regulate may severely undermine such efforts. The UN High Commissioner for Human Rights pointed already in 2003 to the potential chilling effects of the expansionist interpretations of investment rules.157 The potentially high sanctions are producing a ‘regulatory chill’, which is likely to hit hardest the weakest states in need for capital and not capable of paying the ‘price tag’ for legislation and the weakest groups within a society which possess none to low political leverage. The existence of a ‘regulatory chill’ and its effects on human rights legislation provoked an abundance of literature.158 Even though the state is in theory free to choose to regulate nevertheless and compensate accordingly, the price tag for human rights legislation thus created may in practise be an important factor underlying the decision. Bringing the potential compensation into the equation gives considerable and possibly disproportionate weight to the investors’ interest during decision- making processes. Next to the actual threat of compensation, also simply the prospects of causing conflict with major investors and concerns about negative signalling towards potential investors may influence policy making to the detriment of human rights. However, within legal literature a clearly defined concept has not been developed. Kyla Tienhaara draws the attention to this lack, proposes a framework for future empirical research and highlights the challenges of such.159 While doing so, she is already able to rebut the main arguments so far brought against the ‘regulatory chill hypothesis’.160 Summing it up, there are many factors such as the high costs of the proceedings and the human resources for legal representation, the bias in the system, ambiguous legal terms and inconsistencies in the case law that make legislative changes to the detriment of multinational corporations risky and costly for host states. In addition, there are numerous cases and settlements in which states referred to the arbitration proceeding as one factor for redrafting legislation.161 In addition, as cases like Pezold demonstrates, the sole focus on protecting the right to regulate and carving out public policy space is not a reliable shield for the individual right holders. The dominant application and interpretation of the expropriation standard is ignoring and therefore likely to increase the discrimination and human rights tensions existing at local level.

Report of the High Commissioner for Human Rights on Human Rights, Trade and Investment to the UN Economic and Social Council, Commission on Human Rights, Economic, Social and Cultural Rights, UN Doc. No. E/CN.4/Sub.2/2003/9, 2 July 2003, p. 22. 158 E.g., with regards the right to water, Bernasconi-Osterwalder and Weiss (2005); With regards to environmental regulation, Miles (2013), pp. 178–191. 159 Tienhaara (2011). 160 Ibid.; For a critique of the regulatory chill hypothesis, see Schill (2007). 161 See, for a detailed discussion of several cases, Tienhaara (2011), pp. 617–626. 157

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4.3.2.2 Counter Movements As indicated above, most of the reformist discussion revolves around the public interest in general which may include human rights. The methods that have been developed for accommodating public interests can be theorized as operating at three stages. First, judicial balancing can be used when deciding whether an expropriation occurred at all, so that no compensation is due (e.g. the so-called police power doctrine). This falls in line with the all-or-nothing approach. Second, judicial balancing can be applied when deciding on the legality of an expropriation, while reducing the amount of compensation by factoring in the counterweighing public purpose. This method has been described as a return to the adequate compensation model.162 Third, the public purpose can play a role in the calculation of damages after having decided that an expropriation occurred and that in principle full compensation is due. A number of tribunals have adopted the police power doctrine.163 In Saluka, the tribunal asserted that ‘[i]t is now established in international law that States are not liable to pay compensation to a foreign investor when, in the normal exercise of their regulatory powers, they adopt in a non-discriminatory manner bona fide regulations that are aimed at the general welfare.’164 The followers of the police power doctrine, which is an adoption of the US Supreme Court jurisprudence, conceive a legitimate objective behind a regulatory measure as capable of excluding indirect expropriation.165 The Philip Morris v Uruguay presents an unusually progressive ruling in that regard and in respect of many other gates it opened for human rights-based argumentation. In the Philip Morris cases, the claimants argued that imposed restrictions on the packaging of cigarettes which are a recommended means by World Health Organization Framework Convention on Tobacco Control (FCTC) to reduce the public health hazards of smoking to amount to an expropriation of their intellectual property rights. In the Uruguay case, the tribunal upheld that public health is widely accepted as an expression of the state’s police power in accordance with international customary law. By applying the European Court’s of Human Rights (ECtHR) doctrine of ‘margin of appreciation’, the tribunal held that any state measure that is reasonable, not arbitrary and non-discriminatory, adopted in good faith

Shan (2007). ICSID, Marvin Roy Feldman Karpa v. United Mexican States, Award, 16 December 2002, Case No. ARB(AF)/99/1, para. 103; PCA, Saluka Investments B.V. v. The Czech Republic, Partial Award, UNCITRAL, 17 March 2006, para. 255; UNCITRAL, Chemtura Corporation v. Government of Canada, 2 August 2010, para. 266; ICSID, Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, Award, Case No. ARB/10/7, 8 July 2016, para. 305. 164 PCA, Saluka Investments B.V. v. The Czech Republic, Partial Award, UNCITRAL, 17 March 2006, para. 255. 165 For an overview of the scholarly discussion on these two approaches, see Newcombe (2005), p. 25 et seqq.; Kriebaum (2007), pp. 725–729. 162 163

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and not wholly disproportionate does not constitute a breach of expropriation.166 Specific weight was given to the fact that public health is protected by Uruguay’s constitution and the FCTC and that Uruguay was therefore under a national and international obligation.167 However, it also made clear that such an obligation would not permit Uruguay to not fulfil its obligation under the BIT.168 Further, the tribunal paid due attention to the ‘limited technical and economic resources’ of Uruguay as a relatively small country, and therefore allowed Uruguay to refer to the FCTS and the international works produced under that framework, instead of requiring Uruguay to gather its own evidence or conduct prior research,169 which aptly accommodates the need for low-resource countries. In that regard, it is also important to note that the arguments and the evidence provided by the amicus submission were taken seriously (by the WHO and the Pan-American Health Organization) and referred to several times.170 It also considerably curbed the generous understanding of legitimate expectations. In light of a global trend of controlling tobacco increasingly, the investors should have been prepared for more stringent legislation.171 However, it also did not establish global trends as a condition but stressed that also unprecedented measure and ‘breaking new ground’ by individual action could be legitimate.172 This case may establish precedents for several entry points for human rights argumentation. However, it remains questionable whether the reading of the Uruguay tribunal will prevail in light of the consistent rejection of the margin of appreciation doctrine by other tribunals and of the Uruguay tribunal’s failure to explicitly confront the arguments established by previous practice.173 Further, the adoption of the ECtHR’s doctrine of margin of appreciation was sharply criticized by the dissenter; he argued that a direct application is not permitted under IIL, because it is based on the specific language of the European Convention of Human Rights (ECHR) and its context.174 Further and more general, within this strand of case law that supports excluding bona-fide regulations, an exemption of the exemption was accepted when the state E.g. ICSID, Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, Award, Case No. ARB/10/7, 8 July 2016, para. 305. 167 Ibid., paras 302, 304, 432. 168 Ibid., para. 401. 169 Ibid., paras 393, 396. 170 See, e.g. the reference to the arguments brought forward by the amcius submission, ibid., paras 306, 391. 171 Ibid., para. 430. 172 Ibid., para. 430. 173 ICSID, Siemens A.G. v. The Argentine Republic, Award, Case No. ARB/02/8, 6 February 2007, para. 354; SCC, Quasar de Valores v. Russia, Award, No. 24/2007, 20 July 2012, para. 22; ICSID, Bernhard von Pezold and Others v. Republic of Zimbabwe, Award, Case No. ARB/10/15, 28 July 2015, paras 465–466. 174 ICSID, Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, Concurring and Dissenting Opinion Co-Arbitrator Gary Born, Case No. ARB/10/7, 8 July 2016, paras 87, 138. 166

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has ‘entered into specific commitments’.175 It is however contested whether this is an accurate adoption of the police power doctrine or an invention of investment arbitrators.176 It is further noteworthy that both strands of case law—those rejecting and upholding the police power doctrine—have decided based on essentially similarly phrased provisions. To balance an underlying public purpose as a counterweight for the severity of an infringement, some tribunals have resorted to the principle of proportionality. First applied in Tecmed,177 others tribunal followed the principle of proportionality in order to establish whether the State measure at stake constitutes expropriation.178 Occasionally, ISDS tribunals have directly referred to human rights law when importing the proportionality principle.179 Others found it more appropriate to import other methods from other regimes. In Total S.A. v Argentina, for example, the tribunal relied on the General Agreement on Trade in Services (GATS) as ‘guidance’ as both parties were members thereof.180 In sum, in principle, the need for balancing the regulatory discretion of host states against investor rights has been acknowledged by most tribunals. However, the literature as well as the jurisprudence disagree on whether proportionality is the appropriate method for determining the legality of a state measure and on the level on which such balancing should be staged.181 Further, the use of proportionality as well as other weighting methodologies is often nontransparent.182 It is not clear when it is appropriate to balance the interests at stake according to fairness principles as in the General Agreement on Tariffs and Trade (GATT) or according to human rights. The selective adoption of methods from other law regimes without justifications runs the risk of being perceived as arbitrary or even biased and leads to the application of inconsistent methodology. In particular, the adoption of proportionality as applied Tecmed, which continues to be the main reference point, has been highly criticised for being used in a flawed and NAFTA, Methanex Corporation v. United States of America, Final Award, 3 August 2005, sec. Part IV Chapter 4 para 7. 176 For a critical approach, see Sornarajah (2015), p. 218. 177 ICSID, Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, Award, Case No ARB (AF)/00/2, 29 May 2003, para. 122. 178 ICSID, LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc.v. Argentine Republic, Decision on Liability, Case No. ARB/02/1, 3 October 2006, para. 195. 179 See, e.g. Tecmed v. Mexico, Award (n 11) [11, 122] with reference to ECtHR case law; Dupuy and Viñuales (2015), para. 29; Calamita (2013), p. 174. 182; Stone Sweet and della Cananea (2014), pp. 924–940. 180 ICSID, Total S.A. v. Argentine Republic, Decision on Liability, Case No. ARB/04/01, 27 December 2010, para. 123. 181 For a more detailed review, see Kube and Petersmann (2018), pp. 264–265; In favour, Stone Sweet (2010); Kriebaum infers from the ECtHR case law that the proportionality principle should be applied when deciding upon the amount of compensation (‘adequate compensation’), Kriebaum (2007), pp. 730–743; More critical, Alvarez and Khamsi (2009). 182 E.g. in SAUR v Argentina, the need for balancing the investors rights against fundamental rights at stake was recognized, but no transparent methodology was applied, ICSID, SAUR v. Argentina, Decision on Jurisdiction and Liability, Case No. ARB/04/4, 6 June 2012, para. 332. 175

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biased manner.183 Based on the ECtHR jurisprudence in James and Others, the tribunal argued that foreign investors are in principle disproportionately affected by regulatory acts in the public interest, because they are not represented by the public interest and therefore never beneficiaries of the regulatory act. Since as non- nationals, there are not part of the process of forming a public interest or a political will, they should be excluded from sharing the burden of that society.184 This logic is considerably decreasing the weight of public interest in any balancing exercise. Furthermore, the assumption that foreign investors, especially when they are powerful transnational corporations (TNCs) do not have the economic leverage to influence domestic power relations has to be questioned. Critics have further pointed out that proportionality balancing did not have a basis in the treaty texts in the cases in which it was applied,185 which explains why tribunals have resorted to different sources from the ECHR to the GATT with different justification. Sornarajah, for instance, while observing that the law on expropriation is increasingly more accommodating towards human rights implies that the use of proportionality balancing can also work as a method for continuing an expansionist approach.186 He points out that the import of proportionality allows tribunals to find compensable expropriation while taking into account the public interests behind a measure thereby responding to the contestation in the public debate and by a number of scholars.187 Additionally, the choice of human rights cases referred to is not explained and therefore appears biased as seen with the many references to the ECtHR case law in Tecmed, which rather served to establish a ‘special vulnerability’ of foreign investors188 In the absence of a clear methodology developed by arbitrators or a clear treaty base, proportionality can in fact lead to both—restricting expropriation protection or legitimizing and extending it. The wording of today’s expropriation standard in the vast majority of IIAs has not managed to respond to the uncertainties. Although, the most contentious issue has been where to draw the line between compensable indirect expropriation and non-compensable regulatory takings,189 most of the IIAs remain silent on that issue and do not offer any definition.190 Some reformed BITs include annexes with certain criteria, which shall give guidance for the delineation between legitimate regulation Schneiderman (2013), pp. 123–124; Guntrip E (2014) International Human Rights Law, Investment Arbitration and Proportionality Analysis: Panacea or Pandora’s Box? In: EJIL Talk. https://www.ejiltalk.org/international-human-rights-law-investment-arbitration-and-proportionality-analysis-panacea-or-pandoras-box/. Accessed 14 March 2019; For an overview of the diverse applications of the ECtHR case law adopted in Tecmed, see Alvarez (2017), pp. 533–565. 184 ICSID, Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, Award, Case No ARB (AF)/00/2, 29 May 2003, para. 122. 185 See e.g. Sornarajah (2015), p. 228. 186 Ibid., p. 205. 187 Ibid., p. 211. 188 Alvarez (2017), p. 534. 189 Newcombe (n 9); Kriebaum (n 8); Reinisch (2008b), p. 407; UNCTAD, ‘World Investment Policy Framework for Sustainable Development’ (2012). 190 Kriebaum (2007), p. 722. 183

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and compensable indirect expropriations.191 Lukas Stifter and August Reinisch point out that tribunals that had to deal with such a reformed formulation so far mainly relied on criteria of previous case law.192 The Uruguay tribunal appears to be an exception in that is was clearly impressed by recent shifts in the treaty practice even those that were not applicable to the case in question; it specifically referred to the Canada-EU Comprehensive Economic and Trade Agreement (CETA) and the EU-Singapore Free Trade Agreement (FTA).193 However, the majority of IIAs adopted the exception of ‘rare circumstances’.194 The most elaborate version of this exception can be found in the 2015 Draft Norway Model BIT.195 More commonly, the exception is phrased more broadly as in the US Model BIT, Annex B (Expropriation) (4b): Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriation.

The inconsistencies of the use of balancing methods which the tribunals often adopted independently of treaty texts have not been remedied by the new formulations. To the contrary, the exception of ‘rare circumstances’ appears to only shift the uncertainties to another level; it still requires assessment as to what constitutes legitimate regulatory action and weighing methods. Proportionality still has not received any textual authority. The standard of review is hence still unclear and left to the discretion of arbitrators. Therefore, next to persisting uncertainties of the current responses to public policy justifications brought forward by the host states, it remains questionable whether those responses will be able to adequately accommodate specific human rights including those that are being neglected by the host states.

4.3.3 Fair and Equitable Treatment Fair and equitable treatment has risen to the most important standard of investment protection as it is this standard that investment tribunals most often find to be breached. It has been described as an ‘escape route’ when the opposition to expropriation protection forced the latter’s retreat,196 as a ‘catch-all clause’,197 and the Such as the Annex B to the 2012 US Model BIT and the Annex B13(1) of the 2004 Canada Model BIT. 192 Stifter and Reinisch (2016), p. 93 with reference to Railroad Development Corporation v Republic of Guatemala, Award [2012] ICSID Case No. ARB/07/23. 193 ICSID, Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, Award, Case No. ARB/10/7, 8 July 2016, paras 290, 295–300. 194 Exceptions are the 2012 Germany Model BIT, 2008 UK Model BIT and 2015 India Model BIT. 195 Article 6 (8). 196 Sornarajah (2015), p. 206. 197 Mann (1982), p. 243. 191

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‘bedrock’ of the international investment regime.198 At the same time, it is highly contested as the major threat for domestic state action and has provoked vast criticism in literature.199 FET provisions are textually very broad, which is why today’s concept is mainly a creation of arbitral practice of the last two decades.200 The FET standard is found in virtually all IIAs albeit with slight variations.201 Generally, the traditional formulation is merely requiring states to accord to investors ‘fair and equitable’ treatment.202 Alternatively, the FET principle is linked to either international law more general or to the customary law standard of ‘minimum treatment’, while both can be formulated as the floor or the ceiling, or to be linked to a positive or negative list.203 However, the differences in formulations have not been echoed by arbitral practice.204 Instead, tribunals rather followed precedents than addressing treaty formulations, so that standardized interpretation methods and autonomous principles developed. The problem with de facto applying precedent while formally rejecting it, is the absence of an authoritative methodology, which is why previous faulty conclusions might be more easily transplanted.205 Hence, such autonomous standards have and can further proliferate. Based on the MFN principle or—as it has been argued206—when becoming a principle of customary international law, these autonomous FET standards may also be invoked independently of whether the IIA underlying the dispute incorporates a restricted formulation or no FET at all.207 The relationship between the FET standard enshrined in IIAs and the international customary law standard of minimum treatment has been widely disputed.208 This standard has been defined as ‘an outrage, … bad faith, … wilful neglect of duty, or … an insufficiency of governmental action so far short of international standards that every reasonable and impartial man will readily recognise its insuf-

Jacob and Schill (2015), p. 1. Muchlinski (2006), p. 527; Tudor (2008), Schill (2010), Paparinskis (2013), Dolzer (2013), p. 7; Dumberry (2014), p. 47; Jacob and Schill (2015). 200 Schreurer (2005). 201 UNCTAD Series on Issues in International Investment Agreements II, Fair and Equitable Treatment: A sequel, 2012, p. xiii; For an extensive overview of the different versions of FET based on a study of 358 IIAs, see Tudor (2008). 202 E.g. NAFTA Article 1105(1): ‘Each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security’. 203 UNCTAD Series on Issues in International Investment Agreements II, Fair and Equitable Treatment: A sequel, 2012. 204 Jacob and Schill (2015), p. 705. 205 Ibid., p. 715. 206 Hindelang (2004). 207 See, e.g. ICSID, Mondev International Ltd. v. United States of America, Award, Case No. ARB(AF)/99/2, 11 October 2002, para. 125. 208 UNCTAD Series on Issues in International Investment Agreements II, Fair and Equitable Treatment: A sequel, 2012, pp. 28–29; Paparinskis (2013). 198 199

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ficiency’ (the so called Neer standard).209 Attempts to regain control over the arbitral practice that was creating its own standards beyond the Neer standard, have proven difficult.210 One example is the binding interpretation on NAFTA Article 1105(1) by NAFTA’s Free Trade Committee, which declared that the FET principle should be understood as the international law standard of minimum treatment.211 However, arbitral practice argued that this international customary standard has evolved over time to be broader than the original Neer standard.212 Schill and Marc Jacob note that whether the provision is linked to an external concept of minimum treatment hardly influenced arbitrators’ interpretations.213 Tribunals have instead carried on interpreting an autonomous standard of FET214—stating that ‘the name assigned to the standard does not really matter’.215 Therefore, independent standards and categories, or ‘casuistic subgroups’ were developed.216 The interpretations given by the tribunal in Waste Management II have been accepted as an authoritative summary of the meaning of the FET standard217: […]the minimum standard of treatment of fair and equitable treatment is infringed by conduct attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety—as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candour in an administrative process. In applying this standard it is relevant that the treatment is in breach of representations made by the host State which were reasonably relied on by the claimant.218

In sum, despite differently formulated FET provisions and different strands of arbitral practice, standardized interpretations and common trends can be identified, which expanded the possibilities to capture any kind of profit reducing state inter-

US-Mexico General Claims Commission, L. F. H. Neer and Pauline Neer (U.S.A.) v. United Mexican States, Report of International Arbitral Awards IV, pp. 61–62. 210 Jacob and Schill (2015), p. 706. 211 NAFTA Free Trade Commission (2001) Notes of Interpretation of Certain Chapter 11 Provisions. 212 UNCITRAL (NAFTA), Merrill & Ring Forestry L.P. v. The Government of Canada, Award, 31 March 2010, paras 205–213. 213 Jacob and Schill (2015), p. 708; One exception is, UNCITRAL (NAFTA), Glamis Gold, Ltd. v. The United States of America, Award, 8 June 2009, paras 598–616. 214 PCA, Saluka Investments B.V. v. The Czech Republic, Partial Award, UNCITRAL, 17 March 2006, para. 291; ICSID, Azurix Corp. v. The Argentine Republic, Award, Case No. ARB/01/12, 14 July 2006, para. 361; ICSID, Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, Award, Case No. ARB/05/22, 24 July 2008, para. 592; UNCITRAL (NAFTA), Merrill & Ring Forestry L.P. v. The Government of Canada, Award, 31 March 2010, paras 205–213. 215 UNCITRAL (NAFTA), Merrill & Ring Forestry L.P. v. The Government of Canada, Award, 31 March 2010, para. 210. 216 Dolzer (2013), p. 14. 217 Paparinskis M, Fair and Equitable Treatment, ID 2713914, 11 January 2016, p. 4. 218 ICSID, Waste Management, Inc. II v. United Mexican States, Award, Case No. ARB(AF)/00/3, 30 April 2004, para. 98. 209

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ferences. The category of legitimate expectations—although confronted with fierce criticism—dominates most of the controversial cases. 4.3.3.1 Legitimate Expectations Next to the prohibition of arbitrary and discriminatory treatment, denial of justice and abusive conduct towards investors, arbitral practice developed the contested category of protection of legitimate expectations, which UNCTAD describes as an arbitral innovation.219 The interpretation by the Tecmed tribunal became the main reference point for subsequent arbitration220: [t]he foreign investor can [legitimately] expect [from] the host State to act in a consistent manner, free from ambiguity and totally transparently […] so that it may know beforehand any and all rules and regulations that will govern its investments.221

This far-reaching assumption was deduced from the parties’ intentions expressed in the preamble of intensifying the economic cooperation, which should mainly be achieved by creating favourable terms for foreign investors.222 Yet, at the same time, other tribunals and dissenting opinions have also questioned the legitimacy and the scope of this interpretation.223 Those tribunals have declared this standard as constituting a ’programme of good governance that no State in the world is guaranteeing at all times’,224 as ‘unconscionable for a country to promise not to change its legislation as time and need change […]’225 and as ‘inappropriate and unrealistic’.226 The middle ground appears to be an understanding of legitimate expectation as protecting the investor against a ‘breach of representations made by the host state which were reasonably relied on by the investor.’227 Such representation must be— in contrast to the general regulatory environment which requires a stabilization UNCTAD Series on Issues in International Investment Agreements II (n 131) 9; Brown (2009). ICSID, CMS Gas Transmission Company v. Argentina, Award, Case No. ARB/01/8, 12 May 2005; ICSID, Enron Corporation v. Argentina, Award, Case No. ARB/01/3, 22 May 2007; ICSID, Sempra Energy International v. Argentina, Award, Case No. ARB/02/16, 28 September 2007. 221 ICSID, Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, Award, Case No ARB (AF)/00/2, 29 May 2003, para. 154. 222 ibid 156. 223 ICSID, El Paso Energy International Company v. The Argentine Republic, Award, Case No. ARB/03/15, 31 October 2011, para. 342; ICSID, MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, Decision on Annulment, Case No. ARB/01/7, 21 March 2007, para. 67. 224 ICSID, El Paso Energy International Company v. The Argentine Republic, Award, Case No. ARB/03/15, 31 October 2011, para. 342. 225 ICSID, Continental Casualty Company v. Argentina, Award, Case No. ARB/03/9, 5 September 2008, para. 288. 226 PCA, Saluka Investments B.V. v. The Czech Republic, Partial Award, UNCITRAL, 17 March 2006, para. 304. 227 ICSID, Waste Management, Inc. II v. United Mexican States, Award, Case No. ARB(AF)/00/3, 30 April 2004, para. 98. 219 220

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clause for having such effect—in some way be specifically directed at the investor, which can be described as a ‘quasi-contractual relationship’.228 However, an investor can also be induced by a state through the structuring the legal framework in general.229 This means, although a complete standstill of legislation can hardly be expected, legitimate expectations still impose several requirements on the general regulatory framework of the host state. Jacob and Schill, for example, recognize the right to regulate and the need for dynamic adjustment of legislative framework as long as the dynamic exhibits ‘a certain degree of substantive tranquillity and coherence’.230 In arbitral practice, it has been stated that expectations towards a general stable ‘legal and business environment’ is legitimate.231 In sum, unless justification can be found, legitimate expectations may serve as a shield against any kind of legislative change that is contrary to the profitable business planning.232 4.3.3.2 Tensions with Human Rights Any regulatory measure that affects the investment is put under a presumption of breach—including those that remain below the threshold for constituting an expropriation. For state action to pass the test of lawfulness it has to comply with standards of good governance that have been mainly developed by investment arbitral practice,233 which appear partly broader partly similar than those applied to expropriation. These standards also do not provide for an explicit place for human rights claims as established by domestic constitutions or international human rights conventions. The following prominent cases give an overview of how tribunals responded to human rights claims in the context of FET. Much discussed examples, are the numerous expropriation and FET claims (as of yet over 50 cases) brought against Argentina’s emergency measures that were adopted in the course of its economic and monetary crisis in the 2000s. Most of the tribunals rejected the indirect expropriation claim due to the economic impact remaining below the required threshold and chiefly focused on the FET claim.234 Some of the attacked emergency measures adopted by Argentina were aiming to UNCITRAL (NAFTA), Glamis Gold, Ltd. v. The United States of America, Award, 8 June 2009, para. 766. 229 ICSID, LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc.v. Argentine Republic, Decision on Liability, Case No. ARB/02/1, 3 October 2006, para. 133; ICSID, El Paso Energy International Company v. The Argentine Republic, Award, Case No. ARB/03/15, 31 October 2011, para. 364. 230 Jacob and Schill (2015), p. 729. 231 ICSID, CMS Gas Transmission Company v. Argentina, Award, Case No. ARB/01/8, 12 May 2005, para. 274. 232 See, also, ICSID, Metalclad Corporation v. The United Mexican States, Award, Case No. ARB/97/1, 30 August 2000, para. 99. 233 Sornarajah (2015), p. 257. 234 Except for ICSID, Siemens A.G. v. The Argentine Republic, Award, Case No. ARB/02/8, 6 February 2007. 228

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ensure the accessibility and affordability of water and gas to millions of its citizens that were already under severe economic constrain. Those measures were thereby closely related to guaranteeing the right to water and right to health235 for millions of right holders236—although this was not always the main argument Argentina relied on.237 Therefore, human rights as legal arguments played different roles in the different cases and at different stages. This strand of cases therefore also brought to fore that the treatment of human rights as legal arguments appears to depend on the actor that relies on such arguments as well as on whose human rights are at stake. It also brought to the fore severe inconsistency in the responses adopted.238 For instance, the tribunal in Azurix, did not find ‘any incompatibility’ between the BIT and human rights.239 In contrast, when the tribunal had to assess the rights of the investor, namely its property rights, it applied the reasoning of the Tecmed tribunal and thereby its understanding of the ECtHR’s case law in that regard.240 This reasoning ultimately leads to the conclusion that a public purpose of a state measure should not be relevant when evaluating whether the FET principle was breached as the investor is not a national and should be exempted from sharing the public burden.241 In Suez/Vivendi, the connection between human rights, namely the right to water, and Argentina’s economic measures, was made explicit by Argentina as well as by NGOs that intervened as amicus curiae.242 They argued that ‘water is not an ordinary commodity’ and that its fundamental role for the life and health of Argentina’s citizens as well as its status as a human right should result in granting Argentina a wider margin of discretion when assessing the FET principle.243 The tribunal accepted that Argentina had to intervene in order to ensure sufficient water supply, that this was in fact ‘vital for the health and well-being of 10 million people’.244 However, it did not spell out any concrete human rights obligations of Argentina and UN Committee on Economic, Social and Cultural Rights, ‘General Comments No. 14: The Right to the Highest Attainable Standard of Health (Art. 12)’ (2000); UN Committee on Economic, Social and Cultural Rights, ‘General Comments No. 15: The Right to Water (Arts. 11 and 12 of the Covenant)’ (2003). Argentina has ratified the ICESCR. Except for the US, also the other states party to the BITs underlying the disputes have ratified the ICESCR. 236 For a comprehensive analysis of this issue, see Meshel (2015). 237 Kriebaum (2013a), p. 7. However, the argumentation of Argentina has not always been public, see, e.g. ICSID, Azurix Corp. v. The Argentine Republic, Award, Case No. ARB/01/12, 14 July 2006, para. 254. 238 For a more detailed review of the arbitral awards regards Argentina and related cases, see Kube and Petersmann (2018), pp. 139–242. 239 ICSID, Azurix Corp. v. The Argentine Republic, Award, Case No. ARB/01/12, 14 July 2006, para. 261. 240 Ibid., para. 311. 241 Ibid., paras 311–312. 242 ICSID, Suez/Vivendi v Argentina, Decision on Liability, Case No. ARB/03/19, 30 July 2010, paras 252, 256. 243 Ibid., paras 252, 256. 244 Ibid., para. 260. 235

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concluded that human rights obligations as well as BIT obligations must and can be respected equally.245 Also in SAUR International v. Argentina, Argentina argued more forcefully that fundamental human rights obligations as well as constitutional rights were at stake and should inform the interpretation of the BIT obligations. The fulfilment of human rights obligations cannot be perceived as an unfair treatment.246 The tribunal rejected the claimant’s argument that the intention behind a measure does not matter, yet at the same time found ‘that human rights in general, and the right to water in particular, are one of the various sources that the tribunal should take into account to resolve the dispute’.247 As in Suez/Vivendi, it concluded in rather abstract terms hat both obligations are compatible as Argentina may comply with its human rights obligations while compensating the investor. This conclusion was sufficient reason for the tribunal to not further discuss the human rights at stake.248 In the other claims against Argentina’s crisis mitigating measures, Argentina did not formulate its defense in human rights terms, but invoked the ‘necessity’-clause in the US-Argentina BIT.249 The human rights aspects were only implicitly discussed as far as they were relevant for applying the customary law principle of state responsibility250 or GATT Article XX.251 In sum, the Argentina line of case illustrates the diverse approaches adopted, leading to diverging and contradictory results. None of the tribunals engaged in an explicit discussion about the direct conflict between human rights and the BIT obligations. A conflict was hence not even identified. The only exception to date appears to be award in Urbaser.252 Although the tribunal ultimately declared the host state’s counterclaim to be invalid, it did engage at length with the human rights arguments brought forward by Argentina. It also drew some progressive conclusions, that in the future may serve as gate opener for human rights arguments. First, the tribunal interpreted Article 46 ICSID Convention and the underlying BIT as allowing for host state counterclaims.253 Second, it accepted international law including human rights as part of the applicable law.254 Third, it Ibid., para. 262. ICSID, SAUR v. Argentina, Decision on Jurisdiction and Liability, Case No. ARB/04/4, 6 June 2012, para. 328. 247 Ibid., para. 330. 248 Ibid., paras 330–331. 249 For a more detailed discussion, see Kube and Petersmann (2018), pp. 241–242. 250 ICSID, CMS Gas Transmission Company v. Argentina, Award, Case No. ARB/01/8, 12 May 2005, paras 315–317; ICSID, Sempra Energy International v. Argentina, Award, Case No. ARB/02/16, 28 September 2007, paras 333–345; ICSID, Enron Corporation v. Argentina, Award, Case No. ARB/01/3, 22 May 2007, paras 294–304. 251 ICSID, Continental Casualty Company v. Argentina, Award, Case No. ARB/03/9, 5 September 2008, paras 192–195. 252 See for a more detailed discussion, Kube and Petersmann (2018), pp. 236–237. 253 As interpreted by the tribunal, ICSID, Urbaser v. Argentina, Award, Case No. ARB/07/26, 8 December 2016, para. 1144. 254 Ibid., paras 1188–1192, 1200–1203. 245 246

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explicitly accepted the general existence of the right to water255 and acknowledged the increased international recognition of obligations for corporate actors under international law.256 However, the tribunal than falls short of identifying such obligations in the given case, because Argentina failed to include such obligations in the BIT or in its domestic laws.257 Although, the tribunal was correct in pointing out that the primary legislative responsibility lies with the host state, it should have discussed the legal force of corporate social responsibilty (CSR) codes the investor has committed itself to although they have not been translated into domestic law.258 Otherwise such CSR commitments would be emptied of much of their legal relevance. Also, other aspects of the legal reasoning concerning human rights are questionable and provoked much criticism. These are on one hand the interpretation of Article 30 UDHR and Article 5(1) ICESCR, which were the tribunal’s main argument for the existence of human rights obligations of private actors.259 On the other hand, the tribunal establishes a distinction between directly applicable obligations to abstain from human rights violations and not directly applicable obligations to perform,260—a distinction that seems at odds with internationally recognized principles and guidelines for TNCs.261 As argued elsewhere, Urbaser thus is also proof that the development of a consistent and coherent human rights jurisprudence will require clear instructions in the treaties and a human rights knowledge on the bench.262 Further, obervers have warned that this conclusion based on the broad reference to general principles of international law can easily be interpreted more restrictively by subsequent awards.263 In Veolia v Egypt,264 Veolia challenged Egypt for enacting legislation in the aftermath of the Arab Spring that was aimed at increasing minimum wages but without Ibid., paras 1197, 1205. Ibid., p. 1195. 257 Ibid., para. 1209. 258 Crow and Lorenzoni (2018), pp. 16–17. 259 Arguing against, Guntrip E (2017) Urbaser v Argentina: The Origins of a Host State Human Rights Counterclaim in ICSID Arbitration? In: EJIL Talk. https://www.ejiltalk.org/urbaser-vargentina-the-origins-of-a-host-state-human-rights-counterclaim-in-icsid-arbitration/. Accessed 14 March 2019. 260 ICSID, Urbaser v. Argentina, Award, Case No. ARB/07/26, 8 December 2016, para. 1210. 261 E.g. The UN Guiding Principles, 13(b), foresees a duty to prevent or mitigate adverse impact on human rights, even if not having contributed to such. 262 Kube and Petersmann (2018), p. 237. 263 Rob Howse argues that the Annulment decision in Exxon (Mobile) v Venezuela might close the door for integrating international human rights convention via Article 38(1)(a) ICJ Statute. See, Robert Howse (2017) Celebrating Venezuela’s Annulment Victory Over Exxon as a ‘Progressive’ ruling? Hold The Champagne and Read This First. In: Int. Econ. Law Policy Blog. http://worldtradelaw.typepad.com/ielpblog/2017/03/celebrating-venezuelas-annulment-victory-over-exxon-as-aprogressive-ruling-hold-the-champagne-and-r.html. Accessed 14 March 2019. 264 ICSID, Veolia Propreté v. Arab Republic of Egypt, Notice of Arbitration (not public), Case No. ARB/12/15, 25 June 2012. 255 256

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adjusting the concessions for waste disposal services made to a foreign investor accordingly although this was contractually guaranteed.265 The question of whether an investor can legitimately that a state continues to evade fundamental labour rights if backed up by a stabilization commitment has not found a clear-cut answer in arbitral case law. The caveat of legitimate expectation therefore becomes especially problematic in states in which host states tolerate or are complicit in human rights violations. Even if foreign investors are not colluding with government directly to this end, the legitimate expectation caveat might still allow them to profit from questionable practices of the host state. The tribunal in Feldmann v. Mexico, for instance, declared it to be a discrimination that the same illegal and corrupt behaviour (lifting a requirement of tax law) that was afforded to others was not afforded to the investor.266 Legitimate expectation can become a major stumbling block for developing states or states in transition that are often due to initiate major legislative restructuring to rehabilitate previous injustices, to increase inclusion of underprivileged groups of society or to lift the general level of both economic, social and cultural (ESC) and civil human rights. 4.3.3.3 Counter Movements However, the principle of legitimate expectations and the investors’ conduct more generally are also discussed as entry points for human rights argumentation. It has been accepted in arbitral practice that the FET principle should not work as an insurance against bad business judgement and inaccurate risk assessments or as a reward for ignorance.267 Generally, an investor should therefore take into consideration ‘all circumstances such as political, socioeconomic, cultural and historical conditions’268 as well as ‘the deference that international law generally’ accords to states.269 This comprises that the investor is aware of the legal as well as of the factual context. It has also been argued that an investor may be under a more stringent duty to investigate and assess the risks when investing in developing countries and countries in economic transitions. Ursula Kriebaum points out, that this is true especially Peterson LE (2012) French Company, Veolia, launches claim against Egypt over terminated waste contract and labor wage stabilization promise. In: Invest. Arbitr. Report. https://www.iareporter.com/articles/french-company-veolia-launches-claim-against-egypt-over-terminated-wastecontract-and-labor-wage-stabilization-promises/. Accessed 14 March 2019. 266 ICSID, Marvin Roy Feldman Karpa v. United Mexican States, Award, 16 December 2002, Case No. ARB(AF)/99/1, paras 128, 169. 267 ICSID, Emilio Agustín Maffezini v. The Kingdom of Spain, Decision on Jurisdiction, Case No. ARB/97/7, 25 January 2000, para. 64; ICSID, Waste Management, Inc. II v. United Mexican States, Award, Case No. ARB(AF)/00/3, 30 April 2004, para. 114. 268 ICSID, Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of Ecuador, Award, Case No. ARB/04/19, 18 August 2008, para. 340. 269 PCA, Saluka Investments B.V. v. The Czech Republic, Partial Award, UNCITRAL, 17 March 2006, para. 305. 265

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in cases, in which the investment is made precisely in hope of profiting from changes and instability of economically and socially shifting states.270 In Generation Ukraine v. Ukraine, the tribunal ascertained that when engaging in highly speculative investments with high potential gains, the high risks are usually also well-known to the investors and consequently must be borne by them.271 Regards post-Soviet states with economies in transition, there have been several cases in which this fact played an important role when assessing what an investor could legitimately expect. It was generally stressed that when investing in states in transition, legislative changes are very likely and should be expected by any businessperson.272 Further, the limited capacity of newly independent states that are just entering global commercial and financing markets led tribunals to be more generous towards regulatory failures.273 Muchlinski suggests that in principle also limited resources of developing countries for conducting a proper assessment of the investment and its consequences especially in light of the country’s rather unpredictable future should also be taken into the account by the investor.274 Whereby it seems appropriate to require a higher degree of precaution from an investor that consciously invests in high risk economic environments, the duty to make oneself aware of the specific circumstances of the host state, should not only be stressed in the context of developing countries or economies in transition. With regards to the US, the tribunal in Methanex reproached the investor—the world largest producer of methanol, a substance being banned in California as an additive to gasoline—for investing in a ‘political economy, in which it was widely known, if not notorious, that governmental environmental and health protection institutions at the federal and state level […] continuously monitored the use and impact of chemical compounds and commonly prohibited or restricted the use of some of those compounds for environmental and/or health reasons.’275 It remains to be seen whether the tribunal of the Vattenfall II arbitration will be convinced by similar arguments.276 In Vattenfall II, the Swedish company Vattenfall sued Germany for not prolonging its operation permits for its nuclear power plants. After the Fukushima nuclear disaster, the German government felt compelled to follow an overwhelming public majority demanding to finally abandon the use of nuclear energy.277 However, Kriebaum (2013b). ICSID, Generation Ukraine, Inc. v. Ukraine, Award, Case No. ARB/00/9, 16 September 2003, para. 20.37. 272 ICSID, Parkerings-Compagniet AS v. Republic of Lithuania, Award, Case No. ARB/05/8, 11 September 2007, para. 335. 273 See, e.g. ICSID, Alex Genin, v. Estonia, Award, Case No. ARB/99/2, 25 June 2001, para. 348. 274 See, also Muchlinski (2006), p. 528. 275 NAFTA, Methanex Corporation v. United States of America, Final Award, 3 August 2005, sec. Part IV, Chapter D, para 10. 276 ICSID, Vattenfall AB and others v. Federal Republic of Germany, Notice of Arbitration, Case No. ARB/12/12, 31 May 2012. 277 For a detailed analysis, see Hoffmann R, Bernasconi-Osterwalder N, The German Nuclear Phase-Out Put to the Test in International Investment Arbitration? Background to the new dispute Vattenfall v. Germany (II), June 2012. 270 271

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tribunals have put certain caveats in place which in turn limit the duties of the investor. The Methanex tribunal, for instance, seems to imply that an assessment of the political and legal environment would not have been required when a specific promise was made that indicated that the state will refrain from regulatory changes.278 Beyond the requirement of a proper assessment of the legal and factual environment prior to the investment, it has been argued that the principle of fairness is mutual and thus requires ‘fair’ behaviour throughout the operation of the investment (‘the person who seeks equity must do equity’).279 It has been stressed that ‘fairness’ as a legal principle requires and offers sufficient flexibility to also place certain duties on the investor.280 As stated above, it is undisputed that fraud and conscious misrepresentation of competence and capacity constitute misconduct that allows for certain state measures in response or a denial of benefits.281 What is more contested is first whether the investor conduct during the operation of the investment can be integrated in assessing fair treatment by the host state and second, from what sources one can draw to define proper behaviour. The tribunal in Lemire v. Ukraine has turned to the objectives of the BIT in question which included the economic development of the host state. It stressed that if an objective of a BIT is to be beneficial for local economic development, the primary beneficiaries of a BIT should in fact be the national citizens, companies and workers and only secondarily the foreign investors.282 Also external legal sources could inform the assessment of proper behaviour. Publicly committing to CSR instruments,283 for example, legitimately raise the expectations of the host state that these are actually complied with.284 Apart from the award in Urbaser, ISDS tribunals have not yet substantively referred to CSR initiatives.285 Even in Urbaser, the tribunal ultimately failed to draw any conclusions from the fact that the claimants had indeed joined the UN Global Compact and declared to adhere to OECD Guidelines for Multinational Enterprises and that these commitments comprise a duty to integrate human rights including the right to water in the operations of the company.286 NAFTA, Methanex Corporation v. United States of America, Final Award, 3 August 2005, sec. Part IV, Chapter D, paras 8–10; Also ICSID, EDF (Services) Limited v. Romania, Award, Case No. ARB/05/13, 8 October 2009, para. 217. 279 Muchlinski (2006), p. 532. 280 Muchlinski (2006). 281 E.g. ICSID, Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, Award, Case No. ARB/03/25, 16 August 2007. 282 ICSID, Joseph Charles Lemire v. Ukraine, Decision on Jurisdiction and Liability, Case No.ARB/08/18, 14 January 2010, paras 272–273 (but without subsequently engaging in balancing the opposing interests). 283 Such as the OECD Guidelines for Multinational Enterprises which include in para 4 an obligation to ‘[e]ncourage human capital formation, in particular by creating employment opportunities and facilitating training opportunities for employees’. 284 Also, see Muchlinski (2006), p. 534. 285 ICSID, Urbaser v. Argentina, Award, Case No. ARB/07/26, 8 December 2016, para. 1195. 286 For a detailed analysis, see Crow and Lorenzoni (2018), pp. 18–20. 278

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Much depends on who carries the burden of proof regards the misconduct. Muchlinski suggests that in principle the investors should be under a duty to proof that their behaviour did not provoke the state measure addressed to them.287 He admits, however, that as of yet, there is no arbitral practice supporting that claim and that earlier case law has decided otherwise.288 Further, due to the lack of expertise on the part of the arbitrators, the required efforts for proofing and documenting human rights violations might be considerably high.289 As discussed above, the consequences for investor misconduct (for fraud and others) are left to the discretion of the arbitrators. As it is the case, with the clean- hands doctrine, all of these considerations often do not lead to the dismissal of a breach but reappear when calculating the damages and may lead to a reduction of those. Rebalancing the interests at the compensation stage can indeed be described as the preferred approach290 and also finds support in the literature.291 Further, the development of this standard is a prime example of what counterforces the treaty makers should be aware of. The FET principles developed into to some degree independent standards of good governance. The creation of independent standards finds support in and is further developed by legal scholarship. For example, Schill and Kenneth J. Vandevelde (respectively) try to construct the FET principle as an ‘embodiment of rule of law’.292 Schill constructs several rule of law categories that the FET principle is supposed to promote such as legality, due process, the protection of legitimate expectations, stability, predictability and consistency, transparency, reasonableness and proportionality. Jacob and Schill suggest that understanding FET under the rule of law paradigm provides for more concrete content and a useful methodology.293 By so doing, they turn the multitude of FET provisions into a uniform standard of the rule of law.294 The content of such uniform standards should not be drawn from the specific underlying treaty, but from comparative domestic legal analysis as well as of international regimes. Such an approach makes it difficult for isolated treaty reforms to escape such developments. Ultimately, the creation of autonomous principles of ‘good governance’, runs the risk of bringing them further out of reach from states and hence from citizens’ interventions. In sum, the vagueness of the treaty language on FET provoked the emergence of good governance standards on its own terms. However, these standards are far from uniform and clear. The different lines of cases rather exposed unpredictability and a lack of commonly accepted methodology. The far-reaching interpretation by arbi Muchlinski (2006), p. 536. ICSID, Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, Award, Case No. ARB/84/3, 20 May 1993, para. 128. 289 Knoll-Tudor (2009), p. 342. 290 Ibid., p. 311. 291 Ibid., p. 324. 292 Jacob and Schill (2015), p. 710; Vandevelde (2010), p. 195. 293 Jacob and Schill (2015), p. 749. 294 Ibid., pp. 713–717. 287 288

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tral practice leading to the creation of highly contested sub-categories such as legitimate expectations did not include a proper place for human rights despite their many implications on them. Some proposals in the literature and isolated attempts in arbitral practice may increase human rights integration; further there certainly seems to be a trend towards increased awareness. However, in the absence of clear treaty language or because of caveats such as ‘unless specifically promised’ such integrationist attempts remain subject to discretion of the arbitrators which can also lead to flawed and unsatisfactory application of human rights methodology.

4.3.4 Full Protection and Security Full protection and security provisions found in the vast majority of today’s IIAs oblige the host state to abstain from physically damaging the investment and to protect the investment against harm stemming from private actors.295 The main critique is directed at the expansionist interpretation by arbitral practice—partly backed up by follow up treaty revisions—that extended the provision to protect against any kind of devaluation of the investment beyond mere physical violence and to assume a breach based on a strict liability test, which means that liability arises from the occurrence of the damage itself.296 In Biwater Gauff v. Tanzania, this standard has been stretched as far as providing a broad guarantee for upholding a legally and commercially stable investment environment.297 Nevertheless, also the protection against physical violence alone poses specific threats for the human rights environment of the local population. Protecting investments in conflict zones is a legitimate objective and necessary. However, foreign investors have utilized the full protection and security clause as a powerful tool against unpleasant resistance and protests by workers or people living in the proximity of investment projects. Foreign investors have—based on this principle—sought support by military and police forces to crush down local protest movements.298 For marginalized groups, however, occupying company premises, forcefully halting production processes are often the only means to express their discontent, gain (the sometimes necessary international) attention or protect themselves from serious hazards for human life, health and environment. One case in point is Chevron Corp. v Ecuador.299 This case concerned severe environmental damages leading to the contamination of ground water, destruction Dolzer and Schreuer (2012), p. 149. Malik (2011), p. 6; For a more detailed discussion, see generally Schreuer (2010). 297 ICSID, Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, Award, Case No. ARB/05/22, 24 July 2008, para. 729. 298 See, e.g. UNCITRAL, Glencore Finance (Bermuda) Ltd. v The Plurinational State of Bolivia, Bolivia’s reply on preliminary objections and rejoinder on the merits, PCA Case No. 2016-39, 24 October 2018, para. 770. 299 UNCITRAL, Chevron Corporation (U.S.) & Texaco Petroleum Corporation (U.S.) v. Republic 295 296

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of farm land and increased health problems amongst the indigenous communities in the Amazonas region which were caused by tanker accidents and pipeline leakages for which the multinational oil conglomerate was allegedly responsible.300 The multinational companies tried to strike down the local protests by relying on the full protection and security standard.301 They failed to specify this particular argument in the dispute which was therefore dismissed on jurisdictional grounds.302 Such arguments may nevertheless add to the leverage used by Chevron and others in their lobbying efforts of Ecuadorian officials and US stakeholders as it was used in extensive campaigning efforts against the victims and supporters.303 Tecmed v. Mexico is another example. Increasing unease with having hazardous waste facilities in proximity and unenforced court rulings ordering to refrain from those activities in breach of Mexican laws, prompted civil society groups to engage in several rallies and ultimately the blockage of the landfill site.304 The investors turned to investment arbitration and submitted that Mexico was in breach of the full protection and security guarantee because it did not put an end to the ‘social demonstrations’ at the site of the landfill.305 The tribunal dismissed this claim because it refused to apply the strict liability threshold.306 However, the fact that the government justified the non-renewal of the licenses partly by the need to respond to the public protest, led the tribunal to find an expropriation, while failing to take into account the underlying public objectives that fueled the protests.307 of Ecuador, Interim Award, PCA Case No. 34877, 1 December 2008; Also referring to this case, Vadi (2010), p. 854. 300 Chevron Corp. In: Amnesty Int. USA. http://www.amnestyusa.org/our-work/issues/businessand-human-rights/oil-gas-and-mining-industries/chevron-corp. Accessed 14 March 2019. 301 ICSID, Burlington Resources Inc. v. Republic of Ecuador (formerly Burlington Resources Inc. and others v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (PetroEcuador)), Decision on Jurisdiction, Case No. ARB/08/5, 2 June 2010, paras 307–309. 302 Ibid., para. 309. 303 Several NGOs and newspapers have been reporting about the multinational oil companies in Ecuador, their legal team and their efforts to break down the opposition, see, for instance, Amazon Watch and others (2013) Open Letter: Institutions, Organizations and Individuals Advocating for Corporate Accountability Condemn Chevron’s Retaliatory Attacks on Human Rights and Corporate Accountability Advocates and See it as a Serious Threat to Open Society and Due Process of Law; Chevron Corp. In: Amnesty Int. USA. http://www.amnestyusa.org/our-work/issues/business-andhuman-rights/oil-gas-and-mining-industries/chevron-corp. Accessed 14 March 2019; Katie R (2017) The New Corporate Playbook, Or What To Do When Environmentalists Stand In Your Way. In: Huffington Post. http://www.huffingtonpost.com/katie-redford/the-new-corporate-playboo_ b_10599544.html. Accessed 14 March 2019. 304 Schneiderman (2013), pp. 119–124. 305 ICSID, Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, Award, Case No ARB (AF)/00/2, 29 May 2003, para. 175. 306 Ibid., para. 177. 307 Guntrip E (2014) International Human Rights Law, Investment Arbitration and Proportionality Analysis: Panacea or Pandora’s Box? In: EJIL Talk. https://www.ejiltalk.org/international-humanrights-law-investment-arbitration-and-proportionality-analysis-panacea-or-pandoras-box/. Accessed 14 March 2019.

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In sum, considering the expected drastic financial sanctions, conflicts that lead to violent clashes between public protestors and local personnel of the investors’ company, it is not unlikely that host states appease such conflicts in a way that satisfies the investor. The threat for exercising democratic rights and protecting other human rights can be expected to increase the weaker the democratic commitment of the government and the stronger the corporate leverage is. It is therefore questionable whether this provision as it stands in the international investment regime can strike a fair balance between the protection of the integrity of foreign property and the rights to resistance and protest of local population and whether arbitral practice is in the position to pay due attention to the specific contexts and existing power imbalances. Citizens of such host states that are generally unwilling or unable to protect their citizens against labor exploitation, environmental damages or land grabbing and that at the same time do not effectively protect the right to demonstration, public expression of opinions and conducting assemblies, experience a double burden when physical and visible protest becomes the only means to protect their most fundamental rights and livelihoods.

4.3.5 National Treatment The basis of investment protection is national treatment which ensures protection against negative discrimination of foreign investors compare to national investors.308 Only applying national treatment will most likely mean that the protection offered by IIAs falls behind the current standards of IIL including in developed democracies.309 One may expect that reducing the international investment regime to national treatment will eliminate all substantial investors’ privileges. However, even nationality-based non-discrimination principles may bear a specific threat for regulation pursuing human rights. As it is the case in human rights law, nationality-based discrimination is usually presumed not only when there is de jure discriminatory state action but also when discrimination occurs de facto meaning when foreign investors are disproportionately affected by formally neutral legislation.310 However, in many developing countries almost entire sectors are often owned and operated solely or to the vast majority by foreign investors. Such sectors that are particularly attractive for large-scale investments are not seldom those that also bear specific risk for the environment or workers, such as the extractive industries. Legislative action that is aimed at such sectors in order to protect the environment or workers’ rights consequentially mainly restricts foreign investors.311 Dolzer and Schreuer (2012), p. 178 et seqq. For a comparison of NAFTA cases against Canada and the protection the investors would have received under Canadian law, see de Mestral and Morgan (2016). 310 Baetens (2010), p. 281. 311 Ibid., p. 281; Kate Miles points to the likeliness of discriminatory effects of environmental regulation when the carbon-intensive sector is mainly owned by foreign investors, Miles (2008), p. 33. 308 309

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Whether such state action amounts to unjustified discrimination depends on the interpretation of likeness, which may include the questions of whether a legitimate public policy objective is pursued proportionately. Case law reviews have shown that social and environmental impact of a business activity has rarely been taken into consideration when assessing ‘like circumstances’.312 When particular features, like hazardous impacts, of an investment are ignored and solely commercial criteria form the base of the comparison, such regulation will usually be captured as discriminatory.313 The reasons for such regulation will then only be assessed at the level of justification,314 for which, the burden of proof is on the state.315 As the treaty texts are usually broadly phrased, tribunals have approached the assessment of likeness and public policy justification differently. Freya Baetens points out that tribunals might be more inclined to accept a justification if it is in line with an exception mentioned in the BIT or even follows from another human rights instrument directly referred to.316 Further, Valentina Vadi demonstrates that the guarantee of national treatment can especially clash with domestic legal regimes or exceptions specifically enacted in order to protect indigenous culture and commercial activities.317 Indigenous people’s subsistence activities and cultures, traditional hunting for example, are sometimes excluded from requiring certain permits or are being be granted derogation from environmental requirements. Such exemptions are in line with international human rights law.318 In the more recent practice of treaty making, the requirement of ‘in like circumstances’ is explicitly included. However, it is questionable whether this specification adds anything since such assessment was already common practice.319

4.3.6 Umbrella Clause and the Stabilization Clause The so-called ‘umbrella-clauses’ expands the scope of the investment treaty to include individual private and public law agreements between the state and the investor, such as contracts, licences and other commitments. Hence, they elevate domestic contract claims to treaty claims enabling the investor to launch ISDS

McLachlan et al. (2007), p. 253; Bernasconi-Osterwalder and Weiss (2005), pp. 269–273. Miles (2013), p. 175. 314 Reinisch (2015), p. 856. 315 UNCITRAL, Pope & Talbot Inc. v. The Government of Canada, Awards on the Merits, 10 April 2001, para. 78. 316 Baetens (2010), p. 304. 317 Vadi (2010), p. 845. 318 See for example Article 21 ICCPR; UN Human Rights Committee, General Comment No. 23: The Rights of Minorities (art. 27), U.N. Doc. CCPR/C/21/Rev.1/Add.5 (8 April 1994). 319 Dolzer and Schreuer (2012), p. 179. 312 313

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proceedings for any alleged breach of an individual contract.320 What kind of host state commitments are covered exactly depends on the formulation of the umbrella clause.321 The majority of Member States (Model) BITs includes an umbrella clause that is broadly phrased, that is along the line of the 2008 Germany Model BIT, Article 7(2), which reads: ‘Each Contracting State shall fulfil any other obligations it may have entered into with regard to investments in its territory by investors of the other Contracting State’.322 A study conducted in 2003 suggested that approximately 40% of all IIAs include umbrella clauses.323 To date, however, it seems that many BITs outside Europe dropped the umbrella clause (e.g. 2011 Colombia Model BIT, 2008 Mexico Model BIT, also not included in the 2012 US Model BIT, but in the 2001 BIT between the US and Lithuania.). In contrast to the FET clause, arbitral practice has previously paid attention to differences in wordings.324 The different aspects as to the scope and the effect of the umbrella clause that have been disputed will not be discussed here.325 For this section’s purpose, it suffices to point out that the main disagreement revolves around first whether only such acts should be covered that the state is performing in its state authority (iure imperii) or also those performed as a commercial actor (iure gestioni).326 Second, tribunals have differed as to whether any breach of contract could be elevated to the international level327 or only when additional criteria are fulfilled such as a commitment that is meant to afford ‘additional investment protection’328 or that is of special ‘magnitude’.329 In sum, with regards to the umbrella clause it seems that uniform independent standards have not yet emerged but that instead much depends on the wording of the underlying clause.

Hindelang and Sassenrath (2015), p. 161. For an overview and discussion of the different formulations, see De Luca (2014), p. 3. 322 See, e.g., 2008 UK Model BIT, Article 2(2), 2008 Netherlands Model BIT, Article 3(4), 2010 Austria Model BIT, Article 11(1). 323 Gill et al. (2004), p. 408. 324 Sinclair (2015), pp. 890–958; ICSID, Salini Costruttori S.p.A. and Italstrade S.p.A. v. The Hashemite Kingdom of Jordan, Award, Case No. ARB/02/13, 28 September 2007, paras 126–128. 325 For an overview of the discussion, see Sinclair (2015), pp. 890–958. 326 The dominant opinion in the literature argues in favour of limiting the umbrella clause to iue imperii, whereas the case law on the issue seems less clear, ibid., pp. 922–923. 327 Against ICSID, SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, Award on Jurisdiction, Case No. ARB/01/13, 6 August 2003, para. 165; In favour ICSID, SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, Decision on Jurisdiction, Case No. ARB/02/6, 29 January 2004, para. 126. 328 ICSID, El Paso Energy International Company v. The Argentine Republic, Award, Case No. ARB/03/15, 31 October 2011, pp. 81–82. 329 ICSID, Salini Costruttori S.p.A. and Italstrade S.p.A. v. The Hashemite Kingdom of Jordan, Award, Case No. ARB/02/13, 28 September 2007, para. 81; For an overview of the debate, see generally Sinclair (2015). 320 321

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Numerous scenarios that can cause conflicts with human rights are imaginable depending on what kind of commitment is ‘internationalized’ through the umbrella clause. In general one can say, the scope of what amounts to an investor right under international law is indefinitely expanded, while the likelihood increases that other interests which might be protected under domestic law will not be granted the same protection in an ISDS proceeding. One example of a concrete commitment that has been highly criticized after the practice became known to the public is the so called stabilization clause. Only after the oil company BP published their contracts with Turkey, Georgia, and Azerbaijan in 2003,330 further pipeline and mining projects and their underpinning investment contracts were scrutinized mainly by NGOs331 and ultimately led the UN Special Rapporteur for Business and Human Rights John Ruggie to investigate the issue.332 A stabilization clause is a standard condition for large-scale and long-term investments in the extractive industries, the infrastructure, the energy sector and public services.333 Such projects are especially vulnerable to lose out on their long- term amortisation when the regulatory environment changes. Stabilization clauses have been criticised for saving the costs of conducting a thorough risk assessment.334 Due to the capital-intensive initial phase of such large-scale investments that are only offset on the long run, investors are often forced to remain inside a country even though the conditions change to their detriment. Since this is known, it considerably weakens their bargaining position.335 Rent-seeking host states can be inclined to neglect the investors’ interests and to increase their own profits by selectively adapting fiscal schemes.336 However, since also legitimate state efforts to protect environmental and social concerns have significant economic impact on investors, protection against those is commonly included in stabilization clauses.337

Shemberg A, Stabilization Clauses and Human Rights, 11 March 2008, p. 1. Amnesty International UK, Human Rights on the Line: The Baku–Tbilisi–Ceyhan Pipeline Project (2003); Amnesty International UK, Contracting out of Human Rights: The Chad–Cameroon Pipeline Project (2005); Global Witness, Heavy Mittal? A State within a State: The Inequitable Mineral Development Agreement between the Government of Liberia and Mittal Steel Holdings NV (2006). 332 Stabilization clauses and human rights, London, 22 May 2008, Consultation Summary; Stabilization Clauses and Human Rights, Johannesburg, South Africa, 21 October 2008, Consultation Summary; Report of the Special Representative of the Secretary General on the issue of human rights and transnational corporations and other business enterprises, John Ruggie; Addendum: Principles for responsible contracts: integrating the management of human rights risks into State-investor contract negotiations: guidance for negotiators, 25 May 2011, Doc. A/ HRC/17/31/Add.3. 333 Howse (2011), p. 1; Shemberg A, Stabilization Clauses and Human Rights, 11 March 2008, p. 4. 334 Howse (2011), p. 3. 335 Cotula (2008), p. 158. 336 Howse (2011), p. 4. 337 Shemberg A, Stabilization Clauses and Human Rights, 11 March 2008, p. vii. 330 331

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The study made by Andrea Shemberg for the UN Special Representative on Business and Human Rights John Ruggie found that stabilization clauses either completely ‘freeze’ the law of the host state with respect to the investment project for as long as the investment project remains in the host state (‘freezing clauses’) or require the state to compensate for legislative change (‘economic equilibrium clauses’). Others more flexible versions combine elements of the two, usually allowing the investor to demand adjustment of his contract (‘hybrid clauses’).338 The economic equilibrium clauses open up another venue to receive compensation for state action that does not reach the threshold for expropriation and FET claims.339 The study concluded that stabilizations clauses are most common in the extractive industries and are most prevalent in non-OECD countries. On the contrary, no OECD country has a contract with a full ‘freezing clause’. Instead, these clauses usually include only targeted discriminatory measures. The stabilization clauses in non-OECD countries however often completely insulate the investor against social and environmental legislation.340 This study thus brought a clear disparity in the usage of stabilization clauses to the fore. In developing countries, stabilization clauses are generally much more extensively interfering with domestic regulatory space, partly allowing the investor to be exempted from all new laws including those implementing human rights. 4.3.6.1 Human Rights Tensions Raising standards in order to comply with international or domestic human rights that apply to the investment project will thus be captured by the stabilization clause. Further, in developing countries, such giant investment projects that are usually conditioned upon such a contract often cover virtually entire sectors, or big parts of the host state economy.341 Investments in infrastructure and extractive industries also may severely affect surrounding territory. The linkage of such investments to the promise not to regulate can create large de-regulated areas in terms of sector, territory and duration.342 The non-enforcement and non-application of for example new labour or environmental law can be described as producing in fact a ‘state within a state’343 or a ‘rights-free corridor’344 in which legislation works at the pace determined by the investors or in which regulation of a certain field of law is de Ibid., p. vii. Cotula (2008), p. 166. 340 Shemberg A, Stabilization Clauses and Human Rights, 11 March 2008, p. x. 341 Cotula (2008), p. 169. 342 Ibid., pp. 169–170. 343 Global Witness, Heavy Mittal? A State within a State: The Inequitable Mineral Development Agreement between the Government of Liberia and Mittal Steel Holdings NV (2006) 30. 344 Amnesty International (2003) Baku-Tbilisi-Ceyhan pipeline project puts human rights on the line. https://www.amnesty.org.uk/press-releases/baku-tbilisi-ceyhan-pipeline-project-puts-humanrights-line. Accessed 14 March 2019. 338 339

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facto absent.345 The cases mentioned above have shown that the stabilization clauses can have especially severe negative effects for the population living close to such investment projects. The state is prevented to intervene regulatorily if detrimental effects for the health of neighbouring people or the environment are discovered in the post-establishment phase. A delay of necessary regulation for long-duration investment projects may very likely deepen or even lead to irreversible damages.346 Further, an unconditional protection creates severe moral hazards in that it releases the investor from any necessity to properly assess the legal environment priorily or to take precautionary measures.347 In sum, stabilization clauses may stand in direct contrast to human rights obligations of states. They either insulate an investor from measures adopted in the pursuance of human rights obligations or they require compensation and adjustment of contracts. One should further note, that also in the absence of an umbrella clause, stabilization clause may play a role in IIL that is for determining the legitimate expectations of an investor under expropriation protection and under the FET principle, especially when an ‘unless specific commitment’ caveat is included. 4.3.6.2 Counter-Movements Several developments to constrain the detriment effect of such clauses can be observed. In legal scholarship, it has been argued by Sheldon Leader that state sovereignty is limited and hence stabilization clauses void according to the international obligation to realize fundamental human rights.348 Hence, such stabilization can never legitimately cover legislation and other state measures that are pursuing human rights. Whereas there are convincing arguments based on the precedence that most fundamental human rights enjoy, (Article 46 VCLT, ius cogens),349 those do not exist for many other human rights. In addition, legal scholars such as Kriebaum have argued the contrary. She accepts that an investor will generally not be able to have legitimate expectations that the national regulatory regime will not be adapted in line with human rights obligations, but claims that this is precisely different if there is a stabilization clause in place.350 Further, in the aftermath of the Ruggie report and the public contestations, there has been a movement amongst many companies to revisit their stabilization clauses and publicly announce their commitment to fair practices. The BTC Consortium behind the controversial Baku-Tblisi-Ceyhan Crude Oil Pipeline Project, which also started the debate about stabilization clauses was the first to adopt such a self-

Johnson and Sachs (2015), p. 39. See, e.g. with regards to environment protection Cotula (2008), p. 170. 347 Howse (2011), p. 4. 348 Leader (2006). 349 See, also Cotula (2008), p. 165. 350 Kriebaum (2009), p. 670. 345 346

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commitment. With the BTC Human Rights Undertaking,351 the Consortium unilaterally declared not to challenge state measures based on the stabilization clauses that are genuinely directed at realizing human rights obligations. However, as Lorenzo Cotula points out, the BTC Consortium has not repealed or restricted the underlying broad model stabilization clause. The fact that the stabilization clause remains in place illustrates the actual power imbalance. The regulatory power seems to rest with the private sector. Further, this self-commitment does not give any direct rights to the affected individuals, such as the workers, the communities and farmers living and working in the proximity.352 Apart from this case, one should be aware, that the majority of stabilization clauses are part of private contracts, and that if governments and companies do not decide to publish them, the details remain obscure. Whether there has been a substantial shift is therefore hard to assess. After all, the expectations in authoritarian and corrupt governments to stand up for their human rights obligations are low. The Mittal Steel—Liberia case demonstrated how a population loses out when being caught between two rent-seeking actors. While legal reforms were urgently needed, the corrupt government of Liberia agreed to include a far-reaching stabilization clause requiring written consent by the company for the application of any new laws. 4.3.6.3 Conclusion Stabilization clauses in investment contracts may enter the regime of international investment law via umbrella clauses, FET principles and expropriation protection. The most radical versions directly prohibit state interferences with the investment in the pursuant of human rights protection. This causes a severe regulatory chill in terms of raising human rights standards but also in terms of responding to immediate human rights violations, such as land grapping, environmental destruction, risks for the health of neighbouring communities and workers’ rights. The North-South divide in terms of the formulation of such clauses shows that these clauses are mostly to the detriment of populations in the Global South. Especially, but not only for authoritarian rent-seeking governments such ‘front loading’ strategies are attractive as they can directly profit from the gains of increased employment and revenues, whereas subsequent governments will suffer from the constraints on their policy space and populations from the regulatory lockin when the human rights threats become visible.353

Baku-Tblisi-Ceyhan Crude Oil Pipeline Project (BTC) Human Rights Undertaking (2003). https://subsites.bp.com/caspian/Human%20Rights%20Undertaking.pdf. Accessed 14 March 2019. 352 For a closer discussion of the possibilities for individual remedies under the BTC Undertaking, see de Schutter (2006), pp. 416–419. 353 See, also Howse (2011), p. 5. 351

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4.3.7 Conclusion To sum up briefly, the place for human rights claims in internationally investment law is textually unclear. In addition to the broad formulation of protection standards, caveats such as ‘unless specifically promises’ or ‘unless in rare circumstances’ leave sufficient room for investor-friendly argumentation. The few incidents in which human rights were integrated in the decision making have so far failed to develop a consistent methodology. Therefore, the openness towards human rights claims appears biased. Further, both expansionist interpretations as well as human rights integration has been argued on similar treaty texts. Except for property rights, arbitrators rarely refer to human rights ex officio. If the host state does not bring in human rights claim in the dispute, they hardly enter the dispute.

4.4 I nternational Investment Arbitration: Entry Barriers for Other Interests 4.4.1 Introduction The main problem for human rights interests of third parties is that they hardly enter the legal dispute. Host states appear to be reluctant to bring in their own (failure to comply with) human rights obligations into a legal dispute. The chances for human rights holders to make their claims heard are slim for mainly three reasons. The first section demonstrates the lack of rules on third party intervention and the lack of any consistent methodology as to how respond to human rights argumentation brought forward by third parties and as to what place to give them in the legal proceedings. Further,—as the second part shows—the neglect of human rights consideration can also be traced back to the composition of the tribunal and the general set-up of the arbitration system—both leading to a system inherently biased towards corporate investor interests. The analysis of these procedural barriers further gives some explanations as to why the substantive law developed as it did. Although the procedural rules depend on each underlying IIA, they are to a great extent centralized. The investor can usually choose between the standard options to submit a claim with ICSID or other institutionalized arbitration system or to opt for ad hoc arbitrations under UNCITRAL Arbitration Rules (Arbitration Rules of the United Nations Commission on International Trade Law).354 Other institutionalized arbitration mechanisms that are less used are the Stockholm Center of Commerce (SCC) and the International Chamber of Commerce (ICC).

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4.4.2 Procedural Exclusion of Third Parties If not represented by the government, amicus curiae participation is the only way to make the interests of affected populations enter the investment proceedings. Third parties, although when having interests at stake, are not being granted full legal standing. The procedural rules usually do not allow for any other forms of third party intervention apart from amicus curiae. There is indeed an increasing number of third party interventions by NGOs and civil society groups as amici curiae, often acting as representatives of affected communities. Whether and according to which requirements third party participation is allowed, depends on the applicable procedural rules. The majority of BITs do not include any specification on third party participation so that usually ICSID or UNCITRAL Arbitration Rules (2010) apply. Under ICSID, non-dispute parties may attend a hearing (ICSID Rule 32(2))—subject to the discretion of the Tribunal and unless any party objects. Since 2006, ICSID Rule 37(2) also allows the tribunal to accept the filing of written submissions by third parties after consultation with the parties to the dispute. Despite the added value for the investment tribunal, one of the factors that should guide the tribunal when deciding upon the acceptance of a third- party submission is whether the third party has a significant interest in the proceeding (ICSID Rule 37 (2)(c)). The UNCITRAL Arbitration Rules (2010) only foresee in the general provision Article 17(1) that the Tribunal shall conduct the proceeding in an appropriate manner provided this is done in an efficient, fair and expeditious way. Since 2014, the UNCITRAL Rules on Transparency are part of the UNCITRAL Arbitration Rules. They apply essentially similar conditions for third party submission as in the ICSID convention (cf. Article 4 of UNCITRAL Arbitration Rules). None of these conventions and most of the current IIAs do not specify how to deal with such written submissions and the interests articulated. Since third party intervention is the only direct access for human rights holders and their representatives to investment arbitration, it is worth looking in more detail into the approaches adopted by tribunals towards these interventions. Further, the analysis of the development of third party intervention gives insights into how arbitrators have and are responding to increasing opposition by going beyond the textual limitations of procedural rules—in contrast to the approach taken with regards to the interpretations of the substantive law. However, as of yet, the impact of human rights argumentation by third party interveners is rather limited. The following brief survey of the case law shows that if at all, human rights argumentation rather played a role for the acceptance of an amicus submission.355 ISDS tribunals usually accepted amicus submission when they found that third parties’ and public interests were at stake. The question whether amicus submissions also facilitated the examination of human rights issues (other than the human rights of the investor) as part of the investment dispute is more dif-

355

This is a summary of the findings published in Kube and Petersmann (2018), pp. 246–252.

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ficult to assess due to a lack of transparency and inconsistent responses to such submissions. In the first cases, in which third party interventions were accepted, the tribunals did so based on the public interest involved. In Methanex v. U.S. in 2001, this was particularly noteworthy since the underlying IIA, NAFTA, did not even provide for third party participation.356 This was welcomed by the defending state as well as Canada and subsequently, the participation of amicus curiae was strengthened by the NAFTA’s Free Trade Commission.357 With Suez/Vivendi, it was the first time that an arbitration tribunal established under ICSID rules decided to accept participation of civil society organizations as amicus curiae despite the objection of the complaining companies.358 The acceptance was once again based on the public interest involved but emphasized that public interest should remain an exception in ISDS cases that is limited to cases as the one in question which ‘centers around the water distribution and sewage systems of a large metropolitan area’.359 Further, the tribunal also explicitly responded to the human rights argumentation made by the amici, however, by concluding that there is no incompatibility between the right to water and the BIT obligations. Argentina’s plea of defense of necessity was assessed without engaging with the human rights at stake.360 In UPS v. Canada, the tribunal dismissed the investors arguments that used labour rights to undermine the privileged treatment of Canada’s postal workers.361 Although, this dissmissal of this faulty argument was brought up by an amicus submission (i.e. the Canadian Union of Postal Workers), the tribunal did not explicitly react to the substance of it, but only referred to the submission in the summary of the procedural history.362 Biwater Gauff v. Tanzania as well as in Suez/Interaguas v. Argentina, the tribunals accepted the amicus submission explicitly because human rights were affected—although the final awards did not engage with the human rights arguments raised in the submissions. In Philip Morris v. Uruguay, the ribunal also referred to the fact that ‘granting the request would support the transparency of the proceeding and its acceptability by users at large.’363 In Glamis Gold v. U.S. and

NAFTA, Methanex Corporation v. United States of America, Decision of the Tribunal on Petitions from Third Persons to intervene as “Amici Curiae”, 15 January 2001, para. 49. 357 NAFTA Free Trade Commission (2003) Statement of the Free Trade Commission on NonDisputing Party Participation. 358 ICSID, Suez/Vivendi v Argentina, Order in Response to a Petition for Transparency and Participation as Amicus Curiae, Case No. ARB/03/19, 19 May 2005. 359 Ibid., paras 19–20. 360 Ibid., para. 262. 361 UNCITRAL, United Parcel Services of America Inc. v. Government of Canada, Awards on the Merits, 24 May 2007, para. 186. 362 Ibid., para. 3. 363 ICSID, Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, Procedural Order No. 4, Case No. ARB/10/7, 24 March 2015, para. 30. 356

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Aguas del Tunari v. Bolivia, neither the acceptance nor the rejection of standing were further substantiated with legal arguments relating to the issues raised.364 James Harrison has already pointed out that therefore three factors appear to be relevant for tribunals when granting third party participation: First, the subject matter of the case has to be of public interest. Secondly, the expertise and perspective of the amici must be expected to assist the tribunal. Thirdly, the amici participation is likely to lead to increased transparency and enhance legitimacy for ISDS in general and for the specific award.365 Therefore, the rationale behind accepting third party intervention is not to ensure legal protection for affected individuals or communities, but to increase the functionality of the tribunal.366 Subsequent case law partly confirms Harrison’s observations, such as Piero Foresti et al. v. South Africa. In this case the petition to submit an amicus brief by the International Commission of Jurists was granted.367 The interveners argued that the evaluations of South-Africa’s legislation that sought to reduce discrimination stemming from the Apartheid regime concerns questions of international obligations of the home and host state regarding non-discrimination, equality as well as the duty to international cooperation and will therefore be of broader relevance for international law.368 The tribunal accepted the participation and asked for feedback on the fairness and effectiveness of the third party participation.369 Since the case was settled before the scheduled amicus submission could be filed, the relevance of the amicus argumentation on the substance of the case cannot be assessed. In contrast to such openness for third party participation, there also have been cases—such as Chevron v. Ecuador (2010)370 and Pezold v. Zimbabwe (2012)371—in which participation was not granted, despite a high level of public interest, not least because of a broad media coverage and international mobilization. In particular, the rejection of by the Pezold tribunal shows that third party intervention at least on the

ICSID, Aguas del Tunari, S.A. v. Republic of Bolivia, Letter by NGO to Petition to Participate as amici curiae, Case No. ARB/02/3, 29 January 2003; UNCITRAL (NAFTA), Glamis Gold, Ltd. v. The United States of America, Decision on Application and Submission by Quechan Indian Nation, 16 September 2005. 365 Harrison (2009). 366 Ibid., p. 405. 367 ICSID, Piero Foresti, Laura de Carli & Others v. The Republic of South Africa, Letter Regarding Non-Disputing Parties, Case No. ARB(AF)/07/01, 5 October 2009. 368 International Commission of Jurists (2009) Petition for Participation as a Non-Disputing Party Pursuant to Article 41(3) of the ICSID Arbitration Rules, paras 24, 34. 369 ICSID, Piero Foresti, Laura de Carli & Others v. The Republic of South Africa, Letter Regarding Non-Disputing Parties, Case No. ARB(AF)/07/01, 5 October 2009. 370 UNCITRAL, Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, Procedural Order No. 8, PCA Case No. 2009-23, 18 April 2011; UNCITRAL, Chevron Corporation and Texaco Petroleum Corporation v. The Republic of Ecuador, Submission of Amici, PCA Case No. 2009-23, 5 November 2010. 371 ICSID, Bernhard von Pezold and Others v. Republic of Zimbabwe, Procedural Order No. 2, Case No. ARB/10/15, 26 June 2012. 364

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basis of the ICSID Convention (i.e. Rule 37) is not understood as enabling participation for other affected parties and their interests, but rather as an expert opinion. The tribunal cited Suez in which it was stated that The purpose of amicus submissions is to help the Tribunal arrive at a correct decision by providing it with arguments, and expertise and perspectives that the parties may not have provided. The Tribunal will therefore only accept amicus submissions from persons who establish to the Tribunal’s satisfaction that they have the expertise, experience, and independence to be of assistance in this case […].372

Following this understanding, the tribunal rejected the participation mainly on two grounds. That is first on a lack of independence of the petitioners.373 Second, it found that human rights in general and indigenous rights in particular are not issues in the proceedings since the parties have not referred to them and the reference to international law in the underlying BIT cannot be understood as incorporating ‘the universe of international law into the BITs or into disputes arising under the BIT’.374 Apart from a disputably narrow interpretation of the ‘applicable-law-clause’, this conclusion shows that other interests than those of the parties are not seen as relevant in the proceedings. Further, the requirement of independence was not met because the indigenous communities first tried to pursue their interests by negotiating with their own government. An understanding of amicus curiae as experts in this sense—although in line with the traditional concept—excludes most affected human rights-holders from the outset. They would rarely suffice the independence requirement as they ideally have communicated with their home governments before entering litigation. Further, whether their interests are relevant will then not depend on the law applicable but on the claims made by the parties. In contrast, in Methanex the tribunal acknowledged, that third party interveners are to be seen as advocates trying to assert their interests and not as independent experts.375 Even if submission by third parties have been accepted, the impact on the substance of the case often remained unclear. As in Grand River v. U.S., in which the National Chief of the Assembly of First Nations submitted an amicus curiae submission, tribunals often merely acknowledge that the arguments ‘read and considered’.376 The analysis of the recent case law shows that there remain many uncertainties as to the conditions for acceptance of amici. There is no consistent practice and no ICSID, Suez/Vivendi v Argentina, Order in Response to a Petition for Transparency and Participation as Amicus Curiae, Case No. ARB/03/19, 19 May 2005, para. 24. 373 ICSID, Bernhard von Pezold and Others v. Republic of Zimbabwe, Procedural Order No. 2, Case No. ARB/10/15, 26 June 2012, para. 56. 374 Ibid., para. 57. 375 NAFTA, Methanex Corporation v. United States of America, Decision of the Tribunal on Petitions from Third Persons to intervene as “Amici Curiae”, 15 January 2001, para. 38. 376 UNCITRAL, Grand River Enterprises Six Nations, Ltd., et al. v. United States of America, Amicus Curiae Submission of the Office of the National Chief of the Assembly of First Nations, 19 January 2009; UNCITRAL, Grand River Enterprises Six Nations, Ltd., et al. v. United States of America, Award, 12 January 2011, para. 60. 372

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clear guidance as to what role amici arguments should play in the judicial decision- making. Acceptance and impact of human rights arguments remain subject to the discretion of the arbitrators, which have so far failed to develop a consistent and transparent methodology. Reliance on the host state to bring in the relevant human rights issues is not sufficient as human rights abuses are more likely to occur when tolerated by the state—either willingly or due to a lack of capacity. Whereas it might be understandable that respondent states have little interest to bring up their own human rights obligations into the dispute and by so doing putting their ‘policy choices’ under legal scrutiny. Solely relying on the respondent states (especially in cases of corrupt or authoritarian governments and dubious human rights records) for bringing into the dispute precisely such civil society interests at stake—as suggested by opponents of increasing rights for third parties377—seems less promising.378 Paradoxically, the fact that foreign investors are excluded from domestic policy making is precisely the reason that is brought to bear by ISDS proponents for giving less weight to the public interest when adjudicating on regulatory takings since the interests of investors are not reflected in such domestic public interest.379 This argumentation thereby deepens the imbalance of representation to the detriment of those groups that are to a large extent excluded from domestic policy making. The traditional set up of arbitration tribunals further impedes access to justice and accountability for affected local populations, which is considered briefly below.

4.4.3 T he Set-Up and Composition of ISDS Tribunals: Bias in the System The above outlined case law shows the reluctance of arbitrators to take into consideration human rights claims and the consequential disregard of human rights interests. This can also be explained by the set-up of the arbitration system and the composition of the tribunals that lead to an inherent bias in the system towards financially strong corporate investors. The major issues are a lack of independency, a lack of transparency, the lack of any control or appeal mechanism, the absence of a requirement to exhaust local remedies as well as the limited diversity of professional and social backgrounds of the investment arbitration community. For these reasons, ISDS is in fact at the heart of the criticism by the opposition to newly negotiated EU trade agreements.

See, for instance, Ketcheson (2016), p. 113 suggesting that ‘the respondent state is capable of presenting the public interest’. 378 Francioni assumes that the human rights interests of the host population can be met through the host state pursuing public interest objectives, see Francioni (2009), p. 72. 379 For a critical analysis of the relation between local democratic developments and foreign investors, see Schneiderman (2013), pp. 114–135. 377

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The various opposing voices from academic side as well as from citizen initiatives and several organizations that emerged during the negotiations of Transatlantic Trade and Investment Partnership with the US (TTIP) and CETA successfully brought attention to the flaws of the ISDS system when measured against basic standards of rule of law and democracy and thereby questioned the legitimacy of the investment arbitration as it stands today.380 The full debate about ISDS will not be rehearsed here, although these flaws are rightly amongst the fundamental concerns and of importance for human rights protection. They limit the effectiveness of human rights arguments and explain the structural tilt towards investors’ interests. Further, rule of law and democratic requirements are closely linked to some human rights issues.381 Lastly, it will depend on the institutional set-up and the individual selection of those who are interpreting and applying the law, how effective reforms of the substantive law will be. Nevertheless, the aim of this book is to shift the focus to the much overlooked human rights issues that occur externally. Further, recent years have seen numerous detailed critiques of ISDS regime.382 For these reasons, this section only briefly summarizes the main criticisms. Gus van Harten was one of the first to clearly outline that investment arbitration, although constituted as commercial style arbitration, is in fact public law adjudication for that investment tribunals not seldom decide upon the legality of state action in the pursuance of public policy and have demonstrable effect on public decision making and public fund allocations.383 The criteria against which public adjudication is measured should therefore also apply to investment arbitration. This comparison is in principle accepted by the majority of observers.384 4.4.3.1 Dependencies, Conflict of Interests and Revolving Doors Fundamental criticism concerns the lack of judicial independence. Lacking the security of tenure, arbitrators depend on a reputation-based appointment. Guaranteed tenure, however, is widely and for good reasons recognized as a fundamental condition for ensuring independence.385 Their salaries depending on the re-appointment, it is in the interest of arbitrators to maintain a flourishing arbitration industry. Since most commonly only investors can bring claims under investment arbitration, a

See, Chap. 3, Sect. 3.6. See, Chap. 2, Sect. 2.3.3. 382 See, generally, Van Harten (2007). 383 Ibid., p. 169. 384 Although, it has also been described as a ‘hybrid’, see, e.g. Douglas (2004). 385 UN Basic Principles on the Independence of the Judiciary (adopted by the Seventh United Nations Congress on the Prevention of Crime and the Treatment of Offenders, Milan, 26 August–6 September 1985; endorsed by GA Res 40/32 and 40/146, UN GAOR, 40th Sess, UN Doc A/ RES/40/32 and A/RES/40/146 (1985)), Article 11, 12. 380 381

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certain affinity towards corporate interests seems useful to keep the system activated.386 Arbitrators are often linked to the investors in other ways as well. Arbitrators who are either former judges or most commonly employed by major law firms, do not seldom switch between serving as an arbitrator and a counsel representing investors.387 Occupying these several roles, it might be difficult for these individuals to advocate contrasting interpretations depending on the current function, especially when those are detrimental to the arbitration industry. For these reasons, it is more likely that generally a more expansive investor protection is favoured. This might lead to a conflict of interest in the specific case, but more over it explains the structural bias towards the interests of investors, and especially towards those that have the financial resources to initiate proceedings.388 The revolving door problem is also closely interlinked to the problem discussed above that is the closeness of the arbitration community. In fact, one study on the revolving door problem showed that the core of arbitrators also tends to appoint each other as co-arbitrators.389 Further, in order to establish oneself as an arbitrator, the approval of senior officials (who appoint the presiding arbitrator) and possibly also of executive officials is required.390 The incentives for the arbitrators to consider alternative approaches that are inconsistent with the values of the business community and their peers are therefore relatively low. Arbitrators also often serve as expert witnesses is other proceedings on legal interpretation questions.391 The interpretative monopoly is further strengthened by the fact that many of the most prominent arbitrators are part of the editorial boards of key journals in the investment field.392 Despite the issue conflicts that might arise by being representative of different interests, some studies show that also the own interests of arbitrators might be at stake as they are often in other ways entangled with the business world of the biggest transnational companies which are repeated players in investment arbitration.393 As others have pointed out, such observations do not say anything about the personal integrity of arbitrators.394 The criticism is directed at the system’s set up which is missing sufficient safeguards.395

Miles (2013), p. 343; Van Harten (2007), pp. 152–153; Krajewski (2014), p. 17. Buergenthal (2006), pp. 495–499. 388 Krajewski et al. (2016), p. 134. 389 Eberhardt and Olivet (2012), pp. 42–43. 390 Dezalay and Garth (1996), p. 45. 391 Andrew Newcombe (2010) The Strange Case of Expert Legal Opinions in Investment Treaty Arbitrations. In: Kluwer Arbitr. Blog. http://kluwerarbitrationblog.com/2010/03/18/the-strangecase-of-expert-legal-opinions-in-investment-treaty-arbitrations/. Accessed 14 March 2019. 392 Eberhardt and Olivet (2012), p. 66. 393 For a study on some specific cases, see ibid., pp. 35–50; Van Harten (2007), pp. 167–168. 394 Miles (2013), p. 344. 395 This has also been acknowledged with concern by actors from within the arbitration community, see Buergenthal (2006), p. 498. 386 387

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4.4.3.2 Knowledge and Awareness Gap Further, the dependency on reappointments by business actors leads to a selection of those lawyers that feel connected to ‘the objectives of international commerce’.396 Experience and expertise in human rights law and more specific sub-regimes of the latter like indigenous people’s rights or women rights is therefore underrepresented. As explained above, Puig, Hirsch and Sornarajah have well described the socio- cultural and professional background of the rather small elitist circle and the effects this composition had on the development of the substantive law.397 Previous case law has shown, that arbitrators react with hesitation to the ‘unspecified’ content of internationally recognized human rights norms and tend to deny jurisdiction.398 Kate Miles therefore recommends facilitating an ‘infusion of a culture’ that will ‘generate the necessary cognitive transformational shift’399 which could be done by promoting more interaction between civil society representative and affected people and the arbitration community. 4.4.3.3 Lack of Transparency and Public Access to Information In commercial arbitration, confidentiality is a crucial feature. Still, also in investment arbitration, awards and related documents remain unpublished by default.400 Under ICSID, which used to be the most transparent set of rules,401 the tribunal can decide to publish the agreement, if both parties agree (Article 48(5) of the ICSID Convention). Similarly, also all hearings are usually held in camera unless decided otherwise by the parties and the arbitrators (UNCITRAL Article 28(3) as well as ICSID Arbitration Rules Rule 32(2)). In light of fierce criticism, there has been a gradual improvement in the last decade with the adoption of multilateral norms (like the UNCITRAL Transparency Rules in 2014402) and several states opting for default disclosure (e.g. NAFTA).403 However, recent examples show that it remains difficult for affected third parties to get access to important documents.404 Miles (2013), p. 344. See, this chapter, Sect. 4.2. 398 ICSID, Bernhard von Pezold and Others v. Republic of Zimbabwe, Procedural Order No. 2, Case No. ARB/10/15, 26 June 2012, para. 57. 399 Miles (2013), p. 345. 400 In a study of all known awards rendered in 2010, 13% were not public, Van Harten (2012), pp. 233–234; For a comprehensive discussion of the advantages and disadvantages of increased transparency, see Delaney and Barstow Magraw (2008). 401 Sasson (2015), p. 1351. 402 UNCITRAL, Rules on Transparency in Treaty-based Investor-State Arbitration (United Nations 2014). 403 NAFTA Free Trade Commission (2001) Notes of Interpretation of Certain Chapter 11 Provisions, sec. A. 404 In Romania v Gabriel Resources, all three potential amici curiae which are also representing local land owners affected by the investment, have been denied any access to documents, see 396 397

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4.4.3.4 No Sufficient Appeal Mechanism The problem of the lack of self-policing within the arbitration community is further facilitated by the absence of any appeal mechanism. Under ICSID, the only means of setting aside an award are the ICSID annulment proceedings, which are not meant to constitute an appeal procedure in the sense of oversight by a higher authority, but a self-correction mechanism based on limited and serious grounds.405 For other awards, domestic review is usually limited to reasons of public policy during recognition and enforcement proceedings in accordance with the New York Convention. The applicable domestic law depends on the seat of the arbitration tribunal or on the state in which enforcement is sought. The arbitrators and the investor therefore have some leeway in selecting the applicable law. Many domestic laws have further limited the possibilities for judicial overturn by their own judiciary to make themselves attractive venues for arbitration.406 4.4.3.5 No Exhaustion of Local Remedy Contrary to human rights law, IIAs usually do not require the exhaustion of local remedies prior to filing a claim with investment arbitration. This procedural privilege for investors is also sharply criticized.407 When victims of human rights violations are expected to go through the domestic court system before being allowed to proceed to a human rights courts—unless the former is inefficient, inadequate or clearly not sufficient—, it is difficult to maintain that the same cannot be expected from a foreign investor.408 Ultimately, improving the domestic court system and the functioning of the rule of law is (often explicitly) referred to as the goals and motives of promoting foreign direct investment flows through international rules.409 Activating the investigations of local courts could be a possibility for introducing local interests and contexts into the dispute. Further, giving courts the possibility to rectify themselves could lead to the improvement of the domestic court system and thereby a better access to justice for everyone.

https://www.iareporter.com/articles/icsid-tribunal-denies-third-party-request-for-release-of-witness-statements-and-expert-reports-in-controversial-mining-case/. Accessed 14 March 2019. 405 Schreuer et al. (2009), p. 1435. 406 Van Harten (2007), p. 155. 407 See, generally Brauch (2017). 408 For an analysis of the requirements to exhaust local remedies in human rights law, see D’Ascoli and Scherr (2007). 409 E.g. CETA, Preamble; See, generally, Jacob and Schill (2015).

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4.5 Conclusion This analysis of the common standards of substantive as well as the procedural investment law has demonstrated the multiplicity of threats they pose to human rights protection and realization and the limited capability of the regime to adequately take into account human rights claims other than those of the investor. Investment arbitration decisions have continuously expanded the protection standards in international investment treaties to pull in almost any measure or decision that reduces a foreign investor’s profit. This includes measures whose object is the protection or promotion of human rights protection and the regulation of investor impact on human rights. International investment law is therefore privileging investor interests often to the detriment of other human rights holders. This insufficient responsiveness is a result of complexity of interactions. The substantive norms do not provide for sufficient textual legitimacy and guidance for taking into account human rights and procedural law does not grant any standing rights to other affected individuals or groups. Host states often have little interest in spelling out their own human rights obligations (and even less so their failures) and prefer to invoke regulatory discretion to justify any impugned action on their part. Amicus curiae interveners have tried to introduce human rights into the dispute, but their arguments have either been explicitly dismissed or implicitly ignored, which is also due to the limited means of articulating human rights claims in IIL-relevant terms. As of yet, even amongst the rather isolated attempts of tribunal to respond and integrate human rights claims, no consistent and transparent methodology has yet been developed. This is in contrast to the right to property (of the investor) which has been discussed more extensively by arbitrators, including through concrete references to international human rights law. Such a selective human rights protection is however not compatible with the fundamental structures of human rights such as indivisibility, universality and non- discrimination. Thereby, the investment regime perpetuates human rights violations and discrimination that persist at local level, which puts a double burden on the most vulnerable parts of the host state’s society.410 Selective protection is an inherent problem of international law and in particular an inevitable result of the fragmentation in international law.411 Further, it might be legitimate. Still, the criticism put forward here is warranted for three reasons: First, the imbalance of enforcement in practice leads to one regime overriding the other. Enforcement does not only comprise the execution of awards but also the autonomous dynamics of the law making and proliferation of this regime. Second, the Also, the General Comment No. 24 of the UN Committee on ESC rights concluded that ‘certain segments of the population face a greater risk of suffering intersectional and multiple discrimination’ through investment-linked human rights violations. See, UN Committee on Economic, Social and Cultural Rights, General Comment No. 24 on State Obligations under the International Covenant on Economic, Social and Cultural Rights in the context of business activities, E/C.12/60/R.1, 10 August 2017, para. 9. 411 See, e.g. Peters (2016). 410

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establishment of investor privileges is commonly justified by its contribution to economic and social development. It is therefore reasonable to hold the regime to account to these benchmarks and evaluate the regime’s legitimacy accordingly. Third and most importantly for this book’s perspective, this imbalance and the failure of identifying and responding adequately stands in contrast to the EU’s constitutional obligations to assess the human rights impact of its investment policies. However, this analysis also showed that while the regime developed autonomous standards, it also remains flexible. To accurately assess the dynamics, the impact of one’s action and the need and possibility for reforms, detailed analyses by the policy maker are required. However, in light of the lack of a uniform methodology, a repeated disregard of textual variations and emerging conception of investment protection provisions as independent principles, any intention to diverge from previous practices has to be expressed clearly. This includes clear instructions on the methods and parameters for balancing conflicting interests. So far, many frictions with human rights are not even identified in arbitration and human rights law is rarely perceived as applicable. The isolated attempts of human rights integration in the arbitral practice and as proposed in the literature need textual legitimacy and methodological support. Further, many human rights impacts are likely to remain concealed as the examples in the context of stabilization clauses show. This stresses the need for including affected rights-holders to represent their interests and experts for providing the right legal tools. Against these considerations and in light of its constitutional requirements, the EU approach is assessed in the next chapter.

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Muchlinski P (2006) ‘Caveat investor’? The relevance of the conduct of the investor under the fair and equitable treatment standard. Int Comp Law Q 55:527–558. https://doi.org/10.1093/iclq/ lei104 Muchlinski P (2011) Corporations and the uses of law: international investment arbitration as a ‘multilateral legal order’. Oñati Socio-Leg Ser 1 Newcombe A (2005) The boundaries of regulatory expropriation in international law. ICSID Rev 20:1–57. https://doi.org/10.1093/icsidreview/20.1.1 Paparinskis M (2012) Basic documents on international investment protection. Hart, Oxford Paparinskis M (2013) The international minimum standard and fair and equitable treatment. Oxford University Press, Oxford Pauwelyn J (2014) Rational design or accidental evolution? The emergence of international investment law. In: Douglas Z, Pauwelyn J, Viñuales J (eds) The foundations of international investment law: bringing theory into practice. Oxford University Press, Oxford, pp 11–44 Peters A (2016) In: Orford A, Hoffmann F, Clark M (eds) The Oxford handbook of the theory of international law. Oxford University Press, Oxford, pp 1011–1031 Petersmann E-U (2015) How to reconcile health law and economic law with human rights - administration of justice in tobacco control disputes. Asian J WTO Int Health Law Policy 10:27–78 Poulsen LNS (2011) Sacrificing sovereignty by chance: investment treaties, developing countries, and bounded rationality. School of Economics and Political Science, London Puig S (2012) Emergence & dynamism in international organizations: ICSID, investor-state arbitration & international investment law. Georgetown J Int Law 44:531 Puig S (2014) Social capital in the arbitration market. Eur J Int Law 25:387–424. https://doi. org/10.1093/ejil/chu045 Reinisch A (2008a) Legality of expropriations. In: Reinisch A (ed) Standards of investment protection. Oxford University Press, Oxford, pp 171–204 Reinisch A (2008b) Expropriation. In: Muchlinski P, Ortino F, Schreuer C (eds) The Oxford handbook of international investment law. Oxford University Press, Oxford, pp 407–456 Reinisch A (2015) National treatment. In: Bungenberg M, Griebel J, Hobe S, Reinisch A (eds) International investment law. Nomos, Baden-Baden, pp 846–869 Salacuse JW (2015a) The law of investment treaties, 2nd edn. Oxford University Press, Oxford Salacuse JW (2015b) Protection against expropriation, nationalization and dispossession. In: The law of investment treaties, 2nd edn. Oxford University Press, Oxford Sasson M (2015) Investment arbitration: procedure. In: Bungenberg M, Griebel J, Hobe S, Reinisch A (eds) International investment law. Nomos, Baden-Baden, pp 1288–1372 Sauvant KP, Sachs LE (eds) (2009) The effect of treaties on foreign direct investment: bilateral investment treaties, double taxation treaties and investment flows. Oxford University Press, Oxford Schachter O (1984) Editorial comment: compensation for expropriation. Am J Int Law 78:121–130 Schill S (2007) Do investment treaties chill unilateral State regulation to mitigate climate change? J Int Arbitr 24:469–477 Schill SW (2009) The multilateralization of international investment law. Cambridge University Press, Cambridge Schill S (2010) Fair and equitable treatment: the rule of law and comparative public law. In: Schill S (ed) International investment law and comparative public law. Oxford University Press, Oxford, pp 151–182 Schneiderman D (2013) Resisting economic globalization. Palgrave Macmillan, Basingstoke Schneiderman D (2016) Global constitutionalism and international economic law: the case of international investment law. In: Bungenberg M, Herrmann C, Krajewski M, Terhechte JP (eds) European yearbook of international economic law 2016. Springer, Berlin, pp 23–43 Schreuer C (2010) Full protection and security. J Int Dispute Settl 1:353–369. https://doi. org/10.1093/jnlids/idq002 Schreuer C, Malintoppi L, Reinisch A, Sinclair A (2009) The ICSID convention: a commentary. Cambridge University Press, Cambridge

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Schreurer C (2005) Fair and equitable treatment in arbitral practice. J World Invest Trade 6:357 Shaffer G, Sell SK (2014) Transnational legal ordering and access to medicines. In: Okediji RL, Bagley MA (eds) Patent law in global perspective. Oxford University Press, Oxford, pp 97–126 Shan W (2007) From North-South divide to private-public debate: revival of the Calvo Doctrine and the changing landscape in international investment law. Northwest J Int Law Bus 27:631–664 Sinclair A (2015) Umbrella clause. In: Bungenberg M, Griebel J, Hobe S, Reinisch A (eds) International investment law. Nomos, Baden-Baden, pp 887–958 Sloane RD, Reisman WM (2004) Indirect expropriation and its valuation in the BIT generation. Br Yearb Int Law 75:115 Sornarajah M (2010) The international law on foreign investment. Cambridge University Press, Cambridge Sornarajah M (2015) Resistance and change in the international law on foreign investment. Cambridge University Press, Cambridge Stifter L, Reinisch A (2016) Expropriation in the light of the UNCTAD investment policy framework for sustainable development. In: Krajewski M, Hindelang S (eds) Shifting paradigms in international investment law: more balanced, less isolated, increasingly diversified. Oxford University Press, Oxford, pp 81–96 Stone Sweet A (2010) Investor-state arbitration: proportionality’s new frontier. Law Ethics Hum Rights 4:48–76. https://doi.org/10.2202/1938-2545.1044 Stone Sweet A, Della Cananea G (2014) Proportionality, general principles of law, and investor- state arbitration: a response to José Alvarez. N Y Univ J Int Law Polit 46:911–954 ’t Hoen EFM (2009) The global politics of pharmaceutical monopoly power: drug patents, access, innovation and the application of the WTO Doha declaration on TRIPS and public health. AMB Publishers, Diemen Tienhaara K (2011) Regulatory chill and the threat of arbitration: a view from political science. In: Brown C, Miles K (eds) Evolution in investment treaty law and arbitration. Cambridge University Press, Cambridge, pp 606–627 Timmers L (2013) The protection against expropriations in Venezuela: a right to property in theory? In: Baetens F (ed) Investment law within international law: integrationist perspectives. Cambridge University Press, Cambridge Tudor I (2008) The fair and equitable treatment standard in the international law of foreign investment. Oxford University Press, Oxford Vadi VS (2010) When cultures collide: foreign direct investment, natural resources, and indigenous heritage in international investment law. Columbia Hum Rights Law Rev 42:797–890 van Harten G (2007) Investment treaty arbitration and public law. Oxford University Press, Oxford van Harten G (2012) Arbitrator behaviour in asymmetrical adjudication: an empirical study of investment treaty arbitration. Osgoode Hall Law J 50:211–268 Vandevelde KJ (2010) Bilateral investment treaties: history, policy, and interpretation. Oxford University Press, New York Viterbo A (2014) Sovereign debt restructuring and investment protection. In: Treves T, Seatzu F, Trevisanut S (eds) Foreign investment, international law and common concerns. Routledge, Abingdon, pp 336–348 Williamson J (1996) Lowest common denominator or neoliberal manifesto? The polemics of the Washington consensus. In: Auty RM, Toye J (eds) Challenging the orthodoxies. Macmillan, Berlin, pp 13–22

Chapter 5

The EU Approach to International Investment Agreements

Abstract The following section gives an overview of the EU approach to international investment regulation and analyses whether they are adequately responding to the human rights tensions identified in Chap. 4. Many protection standards have evolved over time and have been constructed by arbitration and literature as to some degree independent principles and standards of good governance. In addition, marginal variations within the treaty texts have often been ignored by arbitral practice. Therefore, the treaty makers, if intending to regain legislative control or diverge from previous practices, have to be explicit. The intention to impose a restrictive understanding or a roll-back of a standard has to be expressed clearly, especially in the context of highly debated issues. Bearing this in mind, each section summarizes the tensions between the respective rule and human rights as elaborated in the previous chapter, subsequently analyses the EU approach and concludes whether the EU is solving, mitigating, neutral to or deepening the problem (Sect. 5.2). Further, the EU policy to dispute settlement in investment matters is assessed with a focus on the entry barriers for human rights interests as identified in the previous chapters (Sect. 5.3).

5.1 Introduction The EU approach is assessed on the basis of the negotiated texts of EU-Singapore free trade agreement (FTA) (as of 17 October 2014),1 the EU-Vietnam FTA (as of 1 February 2016)2 and on the CETA (as of 14 September

1 The draft trade and investment agreements between the EU and Singapore were signed on 19 October 2018 and received the consent of the European Parliament on 13 February 2019 (in the following: FTA Singapore 2018). As the time of writing, the IPA still awaits ratification by all EU Member States (in the following: IPA Singapore). 2 In October 2018, the European Commission adopted the EU-Vietnam trade and investment agreements (in the following: FTA Vietnam 2018 and IPA Vietnam). At the time of writing, the legal reviews of both agreements are still ongoing. Subsequently, the IPA will need to be ratified by the EU Member States.

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2016).3 After Opinion 2/15, the EU decided against pursing the conclusion of comprehensive FTAs with Singapore and Vietnam as EU only agreements. The results of the negotiations with Singapore as well as with Vietnam were adjusted to create two standalone agreements respectively: an FTA and an Investment Protection Agreement (IPA). However, the protection standards remained largely the same as in the FTAs cited here and are likely to remain the basis for the future EU policy. Where relevant changes have been undertaken, those are indicated. As the agreements with Singapore and Vietnam are not yet in force, further modifications may also occur. CETA has provisionally entered into force and is therefore the main reference point for the following analysis. Nevertheless, one has to keep in mind that the EU investment policy at large is a moving target as it is continuously undergoing changes due to the EU’s own policy shifts and the demands of negotiating partners. However, the agreements negotiated so far have largely been drafted along similar lines and therefore enable to identify an EU investment policy and especially the approach taken by the EU to remedy potential human rights conflicts. The EU policy to dispute settlement in investment matters is assessed on the basis of CETA as the flagship of the new EU approach to investor-state dispute settlement (ISDS).

5.2 Reformed Substantive Provisions The following section analyzes the EU approach towards each of the fundamental standards of investment protection.

5.2.1 Definition of Investor, Investment and Jurisdiction The EU clearly follows an asset-based approach with an exemplary list of protected assets and is thereby in contrast to NAFTA adopting a comparatively broad definition. In contrast to a closed-list, such definition allows for continuing the previous expansionists approach by arbitrators. The investment definition in the EU-Vietnam FTA is phrased the following.4 “investment” means every kind of asset which is owned or controlled, directly or indirectly, by investors of one Party in the territory of the other Party, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, the assumption of risk and for a certain duration. Forms that an investment may take include:

3 CETA has provisionally entered into force on 21 September 2017. At the time of writing, the national parliaments in EU countries have still to approve it before it can take full effect. 4 Essentially similar in now Art. 2.1. (h) IPA Vietnam.

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(i) tangible or intangible, movable or immovable property, as well as any other property rights, such as leases, mortgages, liens, and pledges; (ii) an enterprise, shares, stocks and other forms of equity participation in an enterprise including rights derived therefrom; (iii) bonds, debentures, and loans and other debt instruments, including rights derived therefrom; (iv) turnkey, construction, management, production, concession, revenue-sharing, and other similar contracts; (v) claims to money, or to other assets or any contractual performance having an economic value; For greater certainty, “claim to money” does not include claims to money that arise solely from commercial contracts for the sale of goods or services by a natural or juridical person in the territory of a Party to a natural or juridical person in the territory of the other Party, or financing of such contract other than a loan covered by subparagraph (iii), or any related order, judgement, or arbitral award. (vii) intellectual property rights as defined in Chapter Y of this Agreement [Intellectual Property] and goodwill; Returns that are invested shall be treated as investments and any alteration of the form in which assets are invested or reinvested shall not affect their qualification as investments.

In terms of defining ownership and control, the previous chapter has identified that the scope of investor protection can expand to an unforeseeable extent, if every kind of control and ownership is covered. While these several layers are being granted specific international protection, the corporate veil allows the foreign separate legal entities to escape from liability for interferences with human rights of the host states population.5 This is however limited by a comparatively concrete definition of ownership. In the EU-Vietnam FTA as well as previously in the EU-Singapore FTA, the definition used in GATS was taken on identically by stating that ‘owned’ is defined as beneficially owning more than 50% of the equity interest, while ‘controlled’ means that a person has the power to name the majority of directors or otherwise to legally direct its actions.6 Control is thus defined more narrowly then previous by case law, which also accepted de facto control (in contrast to legal control) through other factors (such as technology, access to supplies or access to markets).7 In the EU-Singapore Agreement, Article 9.1(4) requires the judicial person who owns or controls to have substantial business activity in the territory of the party and a footnote makes clear that for EU companies this means that there has to be an effective and continuous link in accordance with Article 54 TFEU.8 Treaty See, Chap. 4, Sect. 4.3.1. EU-Vietnam FTA, Chapter I General Provisions, Article (…) (now Article 1.2 (c) (i)(ii) IPA Vietnam), cf. GATS, Article XXVIII(n). This was previously also included in EU-Singapore FTA, Article 9.11 (2)(c). The IPA Singapore 2018 does not include such restriction. 7 E.g. UNCITRAL, International Thunderbird Gaming Corporation v. The United Mexican States, Award, 26 January 2006, paras 107–108. 8 Now Article 1.2. (5) IPA Sinagpore states that for juridical person to qualify as a covered investor it is required to have its registered office, central administration or principal place of business in the territory of the respective party. However, as in CETA, in the IPA Singapore the requirements of ownership on control appear to be more lenient. 5 6

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shopping through the establishment of shell companies is thereby made more difficult. Also in CETA Article 8.1 requires the judicial person to be ‘constituted or organised under the laws of that Party and [to have] substantial business activities in the territory.’ However, CETA does not specify any criteria for ownership or control. This again expands the group of protected investors to minority shareholders and enables claims from every layer of the corporate group potentially including holdings and shell companies and therefore facilitates treaty shopping. However, in the Joint Interpretative Instrument annexed to CETA, which is legally binding, the EU and Canada state clearly that ‘shell’ or ‘mail box’ companies’ should not benefit from the agreement.9 As explained above, even if a precise definition of investor, investment and ownership is included, the protection can be broadened again when the jurisdictional clause are phrased broadly. Something that is not mitigated by the new EU approach which therefore remains far behind the proposals put forward by UNCTAD.10 CETA, Article 8.2. reads that ‘[t]his Chapter applies to a measure adopted or maintained by a Party in its territory relating to: (a) an investor of the other Party; (b) a covered investment; […].’ In the EU-Vietnam FTA, Chapter II, Article 1(1), it states that the investment chapter ‘applies to measures adopted […] affecting the establishment of an enterprise or the operation of an investment’. Considering the case-law described in Chap. 4,11 these broadly phrased provisions have been interpreted as to bring other rights such as human rights of the investor under the purview of international protection and ISDS. Such broad phrasing hence opens the way to deepen the imbalance between the enforcement of investors’ privileges and other human rights holders. Above all, it is remarkable that no clear stance was taken as regards the clean-hands doctrine. The legality requirement is only linked to domestic law.12 Despite the intense discussion about the c lean-hands doctrine and denial of benefits in scholarly literature, the investor definition has not been modified to include any link to business and human rights standards, international law or the most fundamental human rights. Investment protection is not conditioned upon compliance with internationally accepted and promoted human rights standards. The legality under domestic law of the home state is further not an expressed requirement in the post-establishment phase as the investment must only be constituted according to such. The EU approach therefore seems to close the door for invoking human rights violations that are occurring in the operational phase as a ground for denial of benefit. At least the EU does not take a clear stance on this much-contested issue.

9 Joint Interpretative Instrument, Point 6.a, http://data.consilium.europa.eu/doc/document/ ST-13541-2016-INIT/en/pdf. 10 Muchlinski (2016), p. 55. 11 See Sect. 4.3. 12 CETA, Article 8.1 states as a requirement for investment protection that the judicial person is ‘constituted or organized under the laws of [home country]’.

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The denial of benefits provision in CETA Article 8.16 is formulated too restrictively to cover treaty shopping or to incorporate the clean-hands doctrine. It reads: A Party may deny the benefits of this Chapter to an investor of the other Party that is and enterprise of that Party and to investments of that investor if: (a) an investor of a third country owns or controls the enterprise; and (b) the denying Party adopts or maintains a measure with respect to the third country that: (i) relates to the maintenance of international peace and security; and (ii) prohibits transactions with the enterprise or would be violated or circumvented if the benefits of this Chapter were accorded to the enterprise or to its investments.

The Joint Declaration in Annex 8-E for Article 8.16, 9.7, and 29.6 adds that ‘related to the maintenance of international peace and security’ includes the protection of human rights. Explicitly excluding investors from third countries can be used to prevent treaty shopping. However, since in CETA there is no clarification included of what constitutes ownership and arbitral practice has previously applied expansive interpretation,13 it is unclear to what kind of cases this provision will apply. In general, in view of the cumulative criteria that need to be fulfilled it seems to be applicable only to a very limited number of cases. In fact, it seems that the only function of this provision is to cover economic sanctions and restrictive measures. The problem is that such an explicit but restrictive carve-out might induce e contrario interpretations to the detriment of human rights protection. Tribunals might conclude that human rights— since not mentioned—are not meant to be included in other provisions leading to the restriction of investor rights. In the EU-Vietnam FTA as well as EU-Singapore (Article 9.1(3)), the definition leaves more room for human rights friendly interpretation. According to both FTAs, a ‘juridical person’ means any legal entity duly constituted or otherwise organised under applicable law, whether for profit or otherwise, and whether privately-owned or governmentally-owned, including any corporation, trust, partnership, joint venture, sole proprietorship or association; […]’.14 A ‘duly’ constitution and ‘applicable law’ can be interpreted as covering human rights or at least the most fundamental human rights. In addition, what is the commonly described as one of the main justifications for the system—a positive contribution to the host state’s economic and social development—is not put into legal terms. This objective is usually included in the preamble, but the legal means to ensure that this will materialize by linking investor protection to the requirement of such contribution are far from exhausted. The determination of what constitutes a contribution to the social development of the host state and what the legal consequences are still unclear. In terms of substance, benchmarks can be inferred from the newly and systematically included Trade and Sustainable Development (SD) chapters.15 However, there is no explicit cross-reference. As UNCTAD, Scope and Definition: A sequel, 2011, pp. 69–72. Essentially similar in now Article 1.2 (b), (q) IPA Vietnam and Article 1.2 (4) IPA Singapore. 15 See Sect. 5.2.13. 13 14

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regards the legal consequences, diverse responses have been developed by arbitral practice. Tribunals have opted for an entire exclusion from investor protection, reducing compensation or for giving no relevance to the investor conduct at all. The EU apparently decided to not take a stance on the clean-hands debate or on the Salini test. Further, the EU approach still protects debt instruments, ‘public law rights’ and intellectual property rights without including any clarification as to how ensure that adequate balancing with human rights interests will be conducted although many cases in the past have been highly problematic in that regard. Arbitral awards have been excluded from the scope of protection. Other transnational activity which may considerably contribute to the aims of advancing economic and social development, such as NGO engagement remains excluded in CETA. The only assets that are protected are those which have explicitly the ‘characteristics of an investment’. As described above, schools, hospitals, care centres, technical assistance and other such assets do not fall under this regime. The EU definition thus makes clear, transnational activity is only protected when aiming for generating profit. In the FTAs with Singapore and Vietnam non-profit organisation are explicitly included. Summing up, the EU keeps the gate open for expansionist interpretation by relying on open-lists of protected assets and a relatively broadly phrased jurisdictional clause. Cut-off points for corporate groups are partly included but partly overturned through other provisions. The clean-hands requirement in CETA is only limited to domestic law of the home country; in the EU-Vietnam FTA and EU-Singapore FTA, it leaves room for including human rights. For all legality requirements it remains unclear whether they could be invoked for human rights violations in the post- establishment phase. The proposal to make the contribution to economic and social development of the host state a constitute element of an investment has been rejected. Although the concept of sustainable development is much clearer in EU agreements due to the linkage to the SD chapter, there is no explicit link to denial of benefits or investment definition. As discussed above, most of the approaches of integrating human rights into investment arbitration like the clean-hands doctrine are highly contested. The EU fails to take a clear stance on most of these issues although they have been identified as the few promising entry points for effective human rights inclusion. This approach remains behind what is possible. The new bilateral investment agreements (BITs) between Iran and Slovakia as well as between Morocco and Nigeria are fine examples. The first, although not including human rights explicitly, presents some innovations such as a dismissal of the claim in case the investor breached host state law including during the operation of the investment.16 The BIT between Morocco and Nigeria imposes several obligations upon investors in accordance with international labour and environmental standards such as an obligation to conduct environmental impact assessments and to uphold the ILO core labour standards as well as all See, Article 14.2., BIT between Iran and Slovakia, signed on 19 January 2017, http://www. rokovania.sk/File.aspx/ViewDocumentHtml/Mater-Dokum-195667?prefixFile=m_.

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human rights conventions to which the host state is a party.17 Further, it includes a provision on extraterritorial liability of the investor in the home state.18

5.2.2 Protection Against Expropriation The main question as to the protection against expropriation is what place the EU accorded to public interest (which includes amongst others human rights concerns) for the establishment of an indirect expropriation. As of yet, finding a method for accommodating these concerns was largely left to the tribunals which responded with either a) solely focussing on the effects while partly taking into account the public interest when assessing the amount of compensation, b) excluding bona fide regulation based on the police power doctrine or c) applying balancing methods such as the proportionality principle for determining both a) and b). CETA, Article 8.12(1) reads: 1. A Party shall not nationalise or expropriate a covered investment either directly, or indirectly through measures having an effect equivalent to nationalisation or expropriation (“expropriation”), except: (a) (b) (c) (d)

for a public purpose; under due process of law; in a non-discriminatory manner; and on payment of prompt, adequate and effective compensation.

For greater certainty, this paragraph shall be interpreted in accordance with Annex 8-A.19

The EU has therefore adopted the standard formulation. Certain concrete carve outs are included, such as measures in compliance with the Agreement on TradeRelated Aspects of Intellectual Property Rights (TRIPS)20 or specific domestic land law.21 Also in line with most recent international investment agreements (IIAs), the EU agreements include annexes that provide some guidance for determining when interference is so severe that it amounts to expropriation. In the EU-Vietnam FTA (Annex on Expropriation, para. 2), this is done in the following way: See, for the BIT between Morocco and Nigeria, signed on 3 December 2016, Article 18, http:// investmentpolicyhub.unctad.org/Download/TreatyFile/5409. For a discussion, see Gazzini T (2017) Nigeria and Morocco Move Towards a “New Generation” of Bilateral Investment Treaties. In: EJIL Talk. https://www.ejiltalk.org/nigeria-and-morocco-move-towards-a-new-generation-ofbilateral-investment-treaties/. Accessed 14 March 2019. 18 See, Article 20 of the BIT Morocco-Nigeria. 19 Identically phrased in EU-Vietnam FTA, Article 16(1) (now Article 2.7(1) IPA Singapore), and phrased essentially similar, EU-Singapore FTA, Article 9.6(1) (now Article 2.6(1) IPA Singapore), both with essentially similarly phrased declarations of understanding of the right to regulate in the Annexes, Annex on Expropriation (now Annex 4 to IPA Vietnam) and Annex 9-A to 9-C (now Annex 1–3 to IPA Singapore). 20 E.g. EU-Singapore FTA, Annex 9-C (now Annex 3 to IPA Singapore); CETA, Article 8.12(6). 21 E.g. EU-Singapore FTA, Annex 9-B (1) (now Annex 2 to IPA Singapore, also in Article 2.7(3) IPA Vietnam). 17

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The determination of whether a measure or series of measures by a Party, in a specific factual situation, constitutes an indirect expropriation requires a case-by-case, fact-based inquiry that considers, amongst other factors: a) the economic impact of the measure or series of measures, although the fact that a measure or series of measures by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that such an expropriation has occurred; b) the duration of the measure or series of measures by a Party or of its effects; c) the character of the measure or series of measures, notably their object, context and intent.22

These indicators are essentially the same as used in many Model BITs since beginning of 2000. The one tribunal that had to decide on these criteria applied the same criteria as established by previous arbitral practice.23 Hence, it appears there is not much gained in terms of predictability. The provision on expropriation itself does not exclude state measures pursuing public interest objectives. The annexes also mainly add criteria based on the impact of the measures in the investment but also including the object, context and intent of a measure. This approach is thus moving away from the sole-effects doctrine but still not adding any clarity as to the legal consequence. The exemptions of public welfare regulations, which are part of the new approach to protect the right to regulate, are more promising. CETA, Annex 8-A states that For greater certainty, except in the rare circumstance when the impact of a measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non- discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations.

This clarification sets a high threshold in terms of impact on the investment for a public policy measure to be considered an expropriation. It makes clear that assessing the public welfare objectives behind a measure has to be part of determining the occurrence of an expropriation and not only of the evaluation of compensation. It is therefore a clear stance against the sole-effects doctrine. For those measures that pass the test, it is, however, a return to the all-or-nothing approach. It remains to be seen whether this would induce arbitral tribunals to be more restrictive on the motives that qualify for legitimate public welfare objectives. The list provided is only exemplary and rather vague. Human rights are not included which was however done in the 2015 Draft Norway Model BIT. Although, the list is only exemplary, one should be aware that arbitral tribunals have so far not accepted the proposition that regulatory takings in the name of human rights enshrined in Essentially similar formulation in now Annex 4 to IPA Vietnam. Also essentially similarly in EU-Singapore FTA, Annex 9-A (except for b) (now Annex 1 to IPA Singapore) which reads ‘the extent to which the measure or series of measures interferes with the possibility to use, enjoy or dispose of the property’. The same is true for CETA, Annex 8-A, except for an additional factor which is ‘the extent to which the measure or series of measures interferes with distinct, reasonable investment-backed expectations’. 23 Stifter and Reinisch (2016); ICSID, Railroad Development Corporation v. Republic of Guatemala, Award, Case No. ARB/07/23, 29 June 2012. 22

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international conventions do not amount to compensable expropriations.24 A clear exemption for measures effectively pursing the fulfillment of international human rights obligations might have been warranted to settle this issue. Further, many previously problematic issues remain unsolved. The main problem is the omission to clearly determine any methodology. However, the caveat ‘except in the rare circumstance when the impact of a measure or series of measures is so severe in light of its purpose that it appears manifestly excessive’ clearly requires balancing of interests. Arbitrators have been given textual authority to apply balancing without specifying any kind of methodology. As discussed above, proportionality balancing has been applied selectively and inconsistently and has therefore in fact lead to both—restricting expropriation protection and legitimizing and extending it. Tribunals have resorted to the General Agreement on Trade in Services (GATS) as well as human rights law. Further, with regards to the latter the choices of cases appeared to be biased. Proportionality balancing has been applied as a priori tilted towards investor interest since—so was argued—foreign investors should not be included in public burden sharing.25 Further, tribunals have read into the balancing that it is only appropriate if the state has not entered into a specific commitment. These problematic issues remain untouched by the EU approach and therefore remain subject to the discretion of investment arbitration. The highly contested outcomes in the cases mentioned in Chap. 4 would not have been prevented by the new formulations. Further aspects that have widely been discussed by scholarly literature are also not taking into account, such as what role the misconduct of the investor should play. It remains unclear, for instance, how to deal with state measures that are directed at the investor when the human rights violation is stemming directly from its action, but those rights are not listed such as women’s right. Again, no link to domestic law or international social corporate responsibility standard was included. It remains to be seen how the SD chapter will influence the interpretation of arbitral practice, which is discussed in more detail below.26 Provisions like Article 9 of the SD chapter in the FTA Vietnam stating that the parties shall enhance the contribution of investment to social and environmental development, could lead to interpretations that link investor conduct to social and environmental rights or to interpretations that leave the main responsibility with the home and host states. Not regulating any balancing methodology leaves a wide discretion to the arbitrators, which as of yet have failed on many occasions to adequately respond to human rights concerns. Another tension with human rights is the application of uniform principles without paying due attentions to the legal realities in the respective states. If specific carve outs are not included as in the EU-Singapore FTA with regards to land rights, it remains to be seen to what extent the legitimacy of public welfare will

Waincymer (2009). ICSID, Azurix Corp. v. The Argentine Republic, Award, Case No. ARB/01/12, 14 July 2006, para. 311. 26 See Sect. 5.2.13. 24 25

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be interpreted in a way that accommodates the specific needs of the respective state. The authority to do so is also left to the arbitrators. A further problem is the exemption for specific commitments. In the EU-Singapore FTA, Article 9.2 (2) states For greater certainty, a Party’s decision not to issue, renew or maintain a subsidy or grant shall not constitute a breach of Article 9.4 (Standard of Treatment) or be considered an expropriation, (a) in the absence of any specific commitment under domestic law or contract to issue, renew, or maintain that subsidy or grant; or (b) if the decision is made in accordance with the terms or conditions attached to the issuance, renewal or maintenance of the subsidy or grant, if any. (emphasis added).27

This opens the possibility to exclude specific commitments from public welfare legislation. Private contracts between the host state and the investor that include a stabilization clause can be understood as constituting such specific commitment. Stabilization clauses are a safeguard against any kind of detrimental state measures and are therefore highly problematic for human rights protection, which is explained in more detail below.28 The ‘specific commitment’ caveat is in fact an umbrella clause in disguise. The inclusion of stabilization clauses is more likely in private contracts between investors and developing countries than in contracts with the EU and therefore is especially affecting populations in developing countries. Further, since they are part of private contracts it is hard to evaluate their prevalence and their impact on human rights if no monitor mechanism is in place.

5.2.3 Fair and Equitable Treatment First, of all, although the benefits of Fair and Equitable Treatment (FET) have been seriously questioned and its omission has been recommended by UNCTAD,29 the EU holds on to the FET clause while introducing small changes. The EU-Singapore FTA says in Article 9.4 the following, which is essentially similar to the EU-Vietnam FTA30: Phrased in essentially similiar terms in the IPA Singapore, Art. 2.2.(3). See also, Sects. 5.2.6 and 5.2.7. 29 UNCTAD, Investment Policy Framework for Sustainable Development [2015 Edition], 2015, p. 98. 30 FTA EU-Vietnam, Article 14: 27 28

1. Each Party shall accord fair and equitable treatment and full protection and security to investments and investors of the other Party in its territory in accordance with paragraphs 2 to 7. 2. A Party breaches the obligation of fair and equitable treatment referenced in paragraph 1 where a measure or series of measures constitutes: a. Denial of justice in criminal, civil or administrative proceedings; or b. Fundamental breach of due process in judicial and administrative proceedings; c. Manifest arbitrariness; or

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1. Each Party shall accord in its territory to covered investments of the other Party fair and equitable treatment and full protection and security. 2. To comply with the obligation to accord fair and equitable treatment set out in paragraph 1, neither Party shall adopt measures that constitute: ( a) denial of justice in criminal, civil and administrative proceedings; (b) a fundamental breach of due process; (c) manifestly arbitrary conduct; (d) harassment, coercion, abuse of power or similar bad faith conduct; or (e) a breach of the legitimate expectations of a covered investor arising from specific or unambiguous representations from a Party so as to induce the investment and which are reasonably relied upon by the covered investor.31

First, a footnote clarifies that ‘[t]reatment in this Article includes treatment of covered investors which directly or indirectly interferes with the covered investors’ operation, management, conduct, maintenance, use, enjoyment and sale or other disposal of their covered investments.’ Second, it is stated that ‘[…] the sole fact that the covered investor’s claim has been rejected, dismissed or unsuccessful does not in itself constitute a denial of justice.’ The CETA provision on FET is considerably more comprehensive, Article 8.10: 1. Each Party shall accord in its territory to covered investments of the other Party and to investors with respect to their covered investments fair and equitable treatment and full protection and security in accordance with paragraphs 2 through 7. 2. A Party breaches the obligation of fair and equitable treatment referenced in paragraph 1 if a measure or series of measures constitutes: ( a) denial of justice in criminal, civil or administrative proceedings; (b) fundamental breach of due process, including a fundamental breach of transparency, in judicial and administrative proceedings; (c) manifest arbitrariness; (d) targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief; (e) abusive treatment of investors, such as coercion, duress and harassment; or (f) a breach of any further elements of the fair and equitable treatment obligation adopted by the Parties in accordance with paragraph 3 of this Article. 3. The Parties shall regularly, or upon request of a Party, review the content of the obligation to provide fair and equitable treatment. The Committee on Services and Investment, established under Article 26.2.1(b) (Specialised committees), may develop recommendations in this regard and submit them to the CETA Joint Committee for decision. 4. When applying the above fair and equitable treatment obligation, a Tribunal may take into account whether a Party made a specific representation to an investor to induce a covered investment, that created a legitimate expectation, and upon which the investor relied in deciding to make or maintain the covered investment, but that the Party subsequently frustrated. […]’ (d) harassment, coercion, abuse of power or similar bad faith conduct; or (e) a breach of the legitimate expectations of a covered investor arising from specific or unambiguous representations from a Party so as to induce the investment and which are reasonably relied upon by the covered investor. 3. The Parties may, by decision in the Trade Committee, agree that treatment other than those listed in paragraph 2 can also constitute a breach of fair and equitable treatment. […]’ (Phrased essentially similar in IPA Vietnam, Art. 2.5 (1)(2)(3)). 31 Phrased essentially similar in IPA Singapore, Art. 2.4 (1)(2)(3).

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5. For greater certainty, “full protection and security” refers to the Party’s obligations relating to the physical security of investors and covered investments. 6. For greater certainty, a breach of another provision of this Agreement, or of a separate international agreement does not establish a breach of this Article. 7. For greater certainty, the fact that a measure breaches domestic law does not, in and of itself, establish a breach of this Article. In order to ascertain whether the measure breaches this Article, a Tribunal must consider whether a Party has acted inconsistently with the obligations in paragraph 1.

One positive feature is that the EU approach qualifies the FET principle to some extent by including a specific list that mainly builds on the Waste Management II criteria and a threshold of degree such as ‘manifest’ and ‘fundamental’. These qualifications remain, however, relatively vague and leave much discretion to arbitral practice which in the past did not agree on a consistent line. There is no reference to international customary law as other recent IIAs have opted for, while the added value of such is also questionable since the FET standard under Customary International Law has been proven to be equally elusive.32 What is more concerning is that the EU continues to endorse the much-contested category of ‘legitimate expectations of a covered investor arising from specific or unambiguous representations’. Thereby the EU introduces a reverse restriction for the right to regulate. As demonstrated above, the previous case law was inconsistent on how to interpret legitimate expectations. Similarly divided is the academic opinion on this issue. Interpretations vary from requiring a quasi-contractual relationship33 to demanding stability and coherence of the general regulatory environment.34 The EU approach does not remedy the card blanche for arbitral practice by adding clarification as to what ‘specific or unambiguous representations’ could mean. The EU FET principle will therefore not be capable to curb expansionist interpretation by arbitrators, especially because previous arbitral readings have hardly been influenced by slight textual changes. A clear language would have been necessary if any restriction was intended. Many analyses have described the interpretations of FET and legitimate expectations as a movement towards constructing autonomous standards of rule of law and good governance, which was partly supported by legal scholarship.35 These provisions also fail to link FET to investors’ human rights compliance or proper conduct. In scholarly literature, it has been proposed to read fairness as also imposing obligations on the investor. The FET principle could have been used to include a reference to investor conduct or to set incentives for proper risk and human rights assessment, by, for instance, conditioning the FET on such pre-cautionary

UNCTAD, Investment Policy Framework for Sustainable Development [2015 Edition], 2015, p. 98. 33 ICSID, El Paso Energy International Company v. The Argentine Republic, Award, Case No. ARB/03/15, 31 October 2011, para. 342. 34 ICSID, Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, Award, Case No ARB (AF)/00/2, 29 May 2003, p. 342. 35 Jacob and Schill (2015), p. 710. 32

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measures (‘provided that the investor …’). For instance, the case Veolia v Egypt has brought to light the unsolved issue of how to treat legitimate expectations of an investor that were based on the continuation of human rights violations. Despite the investors’ conduct during the establishment, also the investors’ conduct during the operation of the investment could be made a condition (e.g. with a reference to external corporate social responsibility (CSR) sources). Such a requirement could have shifted the burden of proof for demonstrating due diligence or compliance with CSR mechanisms to the investor. Whether the general denial of benefit clause will have this conditioning effect, is highly questionable. Its application is limited to only cover exceptional cases. Although the protection of human rights is included in the parties’ understanding of international peace and security (cf. Annex 8-E for Article 8.16, 9.7, and 29.6 of CETA), one might well argue that the violations of human rights that are meant to be countered must reach a certain threshold or fall under the most fundamental human rights for being deemed an international peace and security issue. A further problem is the likeliness of triggering e contrario interpretations. It is an improvement that the CETA FET is not applicable for breaches of another provision, domestic law and other international law and that the CETA version further includes the possibility to review the standard. However, already the NAFTA Free Trade Commission’s efforts in this regard were only of limited impact.36 Further, other issues that were the source of major disagreement in the past are not being generally addressed. Among those is the treatment of particular circumstances, e.g. an economic crisis (as in the Argentina cases)37 or specific contexts (e.g. sensitive environment or indigenous industries). The uncertainties and disagreements that emerged in past cases demand taking a stance by the treaty makers, for instance, by including explicit carve-outs for known specific sensitive issues (e.g. indigenous communities, environment, economies in transition) or general guidance on how to approach differences in capabilities and needs between developing and developed countries. It could have been stressed that legitimate expectations are contextual and relative, so that foreign investor are aware that they cannot legitimately expect that they are excluded from sharing the burden of social development or of an economic and social crisis. Omitting such clarification—despite them being widely discussed by scholarship—may be understood as a conscious decision to leave these concerns to the discretion of arbitrators or as a rejection of any special treatment. It is therefore questionable whether the Argentina cases would have been decided more consistently and less controversially under the reformed regime. Canada added a reservation that explicitly excludes the preference given to aboriginal peoples from national and most-favored-nation treatment.38 However, this reservation demonstrates that the parties understand that the protection standards can have adverse impact on indigenous peoples’ rights if not included specifically. If the protection standards themselves are not adjusted to accommodate See Chap. 4, Sect. 4.3.3. See Chap. 4, Sect. 4.3.3. 38 See, CETA, Reservation II-C-1. 36 37

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these issues but depend on each state’s efforts to push for specific exceptions, another global imbalance is manifested. The Vietnam FTA, for example, does not include any specific protection measures for Vietnam’s indigenous peoples. This is likely due to the fact that the Vietnamese government does not define its ethnic minorities as indigenous peoples.39 Although there might be legitimate reasons for it, which will not be discussed here, this lack of recognition effectively deprives the Vietnamese ethnic minorities of the international protection granted to indigenous peoples. In CETA, the right to regulate in Article 8.9 (1)(2) reverses the burden for demonstrating a treaty breach by clearly stating that the mere fact that a party regulates is not a breach of any investment obligation.40 Every regulatory measure that can be subsumed under the public policy exceptions must pass two thresholds for being captured by the FET provisions. This reversed burden is again reversed, meaning the state is under the duty to justify, in case the investor had different expectations because of ‘specific or unambiguous representations’. Further also other state action not listed in this provision, e.g. other state measures than general laws, or state measures pursuing others than the listed public policy objectives, which could include measure for human rights protection, might still be considered prima facie a breach. The list of legitimate objectives including the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity runs the risk of inducing an e contrario interpretation that will exclude other objectives. The only reference to human rights is the Joint Declaration in Annex 8-E for Article 8.16, 9.7, and 29.6 that makes clear that ‘the maintenance of international peace and security’ includes the protection of human rights. It is puzzling, that fulfilling human rights obligations was not explicitly in the list of legitimate objectives for state action. In the absence of an expressed exception for human rights obligations, much depends on how the tribunal will balance the opposing interests.

International Work Group for Indigenous Affairs (IWGIA), 2016 yearbook on indigenous peoples in Vietnam, 2016. 40 Article 8.9 states that 39

1. For the purpose of this Chapter, the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity. 2. For greater certainty, the mere fact that a Party regulates, including through a modification to its laws, in a manner which negatively affects an investment or interferes with an investor’s expectations, including its expectations of profits, does not amount to a breach of an obligation under this Section.

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5.2.4 Full Protection and Security The EU approach follows the recent trend of clarifying that security does not comprise legal security but only physical security (CETA, Article 8.10(5), EU-Singapore FTA, Article 9.4(4)41 and EU-Vietnam FTA, Article 14(4)). The expansionist interpretation by arbitral practice turning the provision into a guarantee of a legally and commercially stable environment is put to an end. Further, the Vietnam FTA clarifies that the host state is only obliged to act in a manner ‘reasonably necessary’ to physically protect the investor (cf. Article 14(4)).42 This clarification can serve to accommodate the different levels of development of police and security forces between the EU and Vietnam as suggested by UNCTAD.43 The EU approach does not include any safeguards for misusing the full protection and security standards as a means to suppress legitimate exercise of the right to protest, demonstrate, strike or other forms of organized industrial action. Especially a reference to international standards, such as the ILO fundamental principles,44 would have been desirable in order to protect those parts of the population that are not effectively protected by domestic law and enforcement. It has been suspected that investors relied on the full protection and security provision to suppress local protests of already marginalized groups of the population. Although the cases analyzed were not successful in invoking this provision.45 The potential clash should not be underestimated as chilling effects may remain and not all cases are fully public. In light of the exclusionary characteristics of the investment regime and the limited procedural access points, it is crucial to not perpetuate more means of suppression. Following the unchanged formulation of this broad standard, striking a balance between the protection of the integrity of foreign property and the rights to resistance and protest of local population is left for the arbitral practice which has been reluctant or not equipped to enter into detailed considerations of human rights. Further, also relying on the host state government is not promising, since it is precisely such dysfunctional governments that were not willing to or capable of protecting labor or environmental rights of their citizens.

Now IPA Singapore, Art. 2.4 (5). Now IPA Vietnam, Art. 2.5 (5). 43 UNCTAD, Investment Policy Framework for Sustainable Development [2015 Edition], 2015, p. 98. 44 The ILO fundamental principles include the effective recognition of the right to collective bargaining, which are usually referenced in the SD chapters. See, ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up, Adopted by the International Labour Conference at its Eighty-sixth Session, Geneva, 18 June 1998 (Annex revised 15 June 2010). 45 See Chap. 4, Sect. 4.3.4. 41 42

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5.2.5 National Treatment In line with the recent practice, CETA, Article 8.6(1), adopted a standard formulation including the ‘in like situations’ requirement. Similar, the EU-Vietnam FTA as well as the IPA includes a standard national treatment clause with several sector- specific exceptions. Both IIAs do not include a specific public policy or human rights exception for discriminatory treatment. Whether the right to regulate does allow for discriminatory treatment is questionable. EU-Singapore FTA, Article 9.3(3)46 allows discrimination when necessary to protect public security, public morals or to maintain public order, human, animal or plant life or health, when relating to the conservation of exhaustible natural resources and when necessary for the protection of national treasures of artistic, historic or archaeological value amongst others. However, the first exception ‘[…] may [only] be invoked only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society’ sets a high threshold for human rights protection measures. The last exception might be broad enough to specifically protect indigenous people’s culture and commercial activities. If not, measures to protect indigenous people’s activities and cultures through special treatment in domestic legal regimes likely continue to be sanctioned under the national treatment requirements. Although, the EU-Singapore national treatment clause is an improvement, the integration of human rights concerns still lacks clear textual authority. Further, none of the EU IIAs gives any guidance on what ‘in like situations’ means, which may lead to ‘in like situations’ being only measured in commercial terms. Different treatment that is already required because of the specific circumstances of the project itself, like hazardous projects in sensitive regions, will also need to be justified which is likely to be unsuccessful if there is no explicit exception to that end in place. As said above, Canada explicitly excluded the preferences granted to its aboriginal peoples from the national treatment standard.47

5.2.6 The Umbrella Clause At first sight, the EU seems not to have taken a clear stance against the inclusion of an umbrella clause. There is no umbrella clause in CETA. It has been claimed that the dropping of an umbrella clause is probably due to Canada’s initiative, while the EU first proposed a classical, broadly phrased umbrella clause.48 This seems plausible since the EU Commission and the Council of the European Union

Now IPA Singapore, Art. 2.3 (3). See, CETA, Reservation II-C-1. 48 De Luca (2014), p. 17. 46 47

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(Council) have previously identified umbrella clauses as the ‘main pillar’49 of investment regulations and an ‘inspiration’50 for a future EU investment policy. Indeed, other agreements do include an umbrella clause, but more detailed than the previous common standards. In the EU-Singapore FTA, Article 9.4 (5) states51: Where a Party […] had given a specific and clearly spelt out commitment in a contractual written obligation towards a covered investor […] that Party shall not frustrate or undermine the said commitment through the exercise of its governmental authority either: (a) deliberately; or (b) in a way which substantially alters the balance of rights and obligation in the contractual written obligation unless the Party provides reasonable compensation to restore the covered investor or investment to a position which it would have been in had the frustration or undermining not occurred.

First of all, the clause only covers written agreements which sets s a higher threshold than the previous standards but certainly covers investment contracts and stabilization clauses. More interesting and possibly with more impact are the other two thresholds on a subjective level (‘deliberately’) and alternatively on an objective level (‘substantially’).52 Nevertheless, when human rights protection measures are directly targeting the investor or the economic sector that is occupied by one investor, precisely because the investors’ activity is the source of a human rights violations, both criteria are likely to be fulfilled. Stabilization clauses that are standard for state contracts with large-scale and long-term investments in developing countries would thus fall under the protection of EU investment agreements. Council of the European Union, Conclusions on a comprehensive European international investment policy, para. 14. 50 Commission, Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, Towards a Comprehensive European International Investment Policy, COM(2010)343 Final. 8. 51 The same wording is to be found in the IPA Singapore, Art. 2.4(6). Slightly different formulation in the provision in the EU-Vietnam FTA, Art. 14(5) as well as in the IPA Vietnam, Art. 2.5(6). 49

Where a Party has entered into a written agreement with investors of the other Party […] that satisfies all of the following conditions, that Party shall not breach the said agreement through the exercise of governmental authority. The conditions are: (i) the written agreement is concluded and takes effect after the date of entry into force of this Agreement; (ii) the investor relies on that written agreement in deciding to make or maintain an investment […] other than the written agreement itself and the breach causes actual damages to that investment; (iii) the written agreement creates an exchange of rights and obligations in connection to the said investment, binding on both parties; and (iv) the written agreement does not contain a clause on the settlement of disputes between the parties to that agreement by international arbitration. Hindelang S, Sassenrath C-P, The investment chapters of the EU’s international trade and investment agreements in a comparative perspective, Study for the European Parliament’s Committee on International Trade, September 2015, p. 162.

52

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5.2.7 Non-Derogation and Non-Lowering of Standards The EU has strongly emphasized that it is its policy to ensure non-derogation and non-lowering standards. These provisions and their interrelations with the SD chapter are discussed in more detail in Chaps. 6 and 7. With regards to the interaction of these provisions and other investment protection standards, the main question is whether these provisions could prevent investor-friendly concessions such as stabilization clauses from entering the purview of IIA protection and its enforcement mechanism. In the EU-Singapore FTA the following articles are aimed at protecting especially environmental and labour laws.53 Article 13.1(3) (now Article 12.1(3)) reads: The Parties recognise that it is inappropriate to encourage trade or investment by weakening or reducing the protections afforded in domestic labour and environment laws. At the same time, the Parties stress that environmental and labour standards should not be used for protectionist trade purposes.

Article 13.1(5) (now Article 12.3(5)): The Parties recognise that the violation of fundamental principles and rights at work cannot be invoked or otherwise used as a legitimate comparative advantage.

Article 13.12 (1)(2) (now Article 12.12 (1)(2)): 1. A Party shall not waive or otherwise derogate from, or offer to waive or otherwise derogate from, its environmental and labour laws, in a manner affecting trade or investment between the Parties. 2. A Party shall not fail to effectively enforce its environmental and labour laws, through a sustained or recurring course of action or inaction, in a manner affecting trade or investment between the Parties.

First of all, only a limited range of human rights are covered, that is only environmental and labour law and only domestic law.54 Only Article 13.1(5) (now Article 12.3(5)) is not linked to domestic law, but is limited to fundamental principles. Hence, investors can still challenge Singapore if it adopts measures to protect international labour standards. To change domestic legislation in order to raise its labour standards to bring them in accordance with international principles is not covered by this clause. That means that domestic legislation might be frozen although it is below what internationally agreed labour and environmental rights prescribe. Lise Johnson and Lisa Sachs therefore assess that these clauses actually introduce formulations that are weaker than standard non-derogation and non- lowering clauses.55 Many rights that have in the past been most affected such as the right to water or indigenous peoples’ rights are not explicitly protected. In addition, it is unclear what follows from the commitment to conceive lowering labour stan The non-derogation clauses are essentially similar in CETA, Article 23.4 and 24.5, and the EU-Vietnam FTA; Chapter on Sustainable Development, Article 10 (now Article 13.3. FTA Vietnam 2018). 54 Johnson and Sachs (2015), p. 39. 55 Ibid., p. 40. 53

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dards as an investment incentive as ‘inappropriate’ and so are the legal consequences. Would that entirely exclude such promises from the scope of investor protection or would it only lower the compensation due to the investor? What if human rights are being put at risk by the investment project itself? Would countermeasures by the state in order to shield affected people from such risks be considered as raising human rights standards or at preventing lowering? Further, as Johnson and Sachs point out, the non-derogation clause in Article 13.12 (1) (now Article 12.12(1)) is only directed at measures that are affecting trade or investment. The intent to induce an investment alone, which is used in other treaty formulations, does therefore not matter. Whether that means that exemption of investors from domestic labour and environmental law is legitimate as far as it does not have any effect on trade is unclear. It is also unclear whether arbitral tribunals will and are meant to apply the same test for finding an effect on trade that the ECJ adopts and that was interpreted rather broadly in Opinion 2/15.56 This is however of major importance to the question of who carries the burden of proof for such effects.57 Establishing that a derogating measure in fact does have impacts on trade and investment might indeed be very difficult. Further, the threshold imposed by requiring that non-enforcement is only covered when the action or inaction is sustained or recurring is comparatively high.58 Does that mean that isolated acts of derogation are still legitimate without requiring the satisfaction of any special circumstances? Hence many aspects remain unclear in their precise impacts and improvements appear to remain marginal. To sum up, stabilization clauses can still very likely fall under the protection of EU investment agreements. Promising a freeze on legislation to an investor is still not effectively excluded by the non-lowering clauses. The problems discussed in Chap. 4, i.e. the creation of a ‘right-free-corridor’ for investors, the chilling effect by attaching another price tag to human rights regulation and the moral hazards for investors which are shielded from being targeted by reactive measures continue to be existent in EU investment relations. As explained above, it is rather unlikely that an EU member state will negotiate such a clause with a foreign investor. The populations that are most threatened are those in developing countries and especially those living in the proximity of or are working for extracting industries and other investment projects of similar scale that typically insist on the inclusion of such clauses, in particular, if rent-seeking governments care more about immediate profits than preventing long-term damages to the environment or the health of the marginalized people in their country. The cases described in Chap. 4, concerning the establishment of a complete shield for any kind of regulation for investment projects dominating entire sectors and regions, would still be possible under an EU agreement. The EU approach missed the chance of including an expressed link to CSR instruments or codes of conduct and therefore continues to rely on corporate investors to voluntarily revisit their model stabilization clauses or to fulfil their public Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, paras 36–38. Johnson and Sachs (2015), p. 40. 58 Johnson and Sachs (2015). 56 57

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promises not to sue states for human rights regulations. The EU approach is not capable of re-establishing regulatory power or shifting back such power imbalances. Since the stabilization clauses are usually part of private contracts and not public, the real impact of these power imbalances and their proliferation across the globe remains obscure.

5.2.8 Most-Favoured-Nation Standard Against the background of previous fairly unconstrained application of the Most- Favoured-Nation Standard (MFN) standard by arbitrators that was usually rather based on the legal context of the whole agreement and objective of effective investor protection than the precise formulation of the text, any intended reform by the EU must be expressed clearly. Arbitral practice only excluded those standards from the MFN standard that were considered an essential condition for the consent to the agreement which invites treaty-makers to be make that clear. The new EU approach is indeed clear about the exclusion of importing procedural standards. CETA, Article 8.7(4) and EU-Vietnam FTA Article 4(4) and (6)59 explicitly exclude dispute settlement provisions. Further, there is no MFN clause in the EU-Singapore FTA. Hence, under EU agreements investors are prevented from putting together the most convenient provisions to gain access to dispute settlement. This is different, however, with regards to substantive standards. Investors can still invoke better treatment that has been accorded to other investors through domestic measures implementing the more favourable BIT.60 However, they cannot import substantive standards from other treaties directly. Further, there are again neither special carve-outs included for issues relating to minorities or marginalized communities as recommended by UNCTAD61 nor for other context-specific human rights issues. This means that other progressive provisions, for example those protecting special interests or more far reaching public policy objective, can be circumvented if at domestic level more investor-friendly standards have been implemented. This MFN clause is still capable of undermining the reforms included in the new IIAs and of distorting the balance of interests that is achieved there within.

Similarily in IPA Vietnam, Article 2.4(5). ‘Substantive obligations in such agreements do not in themselves constitute ‘treatment’ and thus cannot be taken into account when assessing a breach of this Article. Measures by a Party pursuant to those substantive obligations shall be considered treatment’. 61 UNCTAD, Investment Policy Framework for Sustainable Development [2015 Edition], 2015, p. 97. 59 60

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5.2.9 Preamble The Commission has pointed to the reformulated preamble as another safeguard for public policy objectives and the right to regulate. Indeed, in CETA, the right to regulate is reoccurring in the preamble including the list of legitimate policy objectives, such as public health, safety, environment, public morals and the promotion and protection of cultural diversity. Fundamental rights and human rights are mentioned, as well as sustainable development, domestic and international commitments on labour and environmental, sustainable development and CSR. According to Article 31(2) VCLT, the preamble is part of the context informing the interpretation of the treaty provisions. However, it is difficult to predict how the preamble will influence arbitral interpretations of the treaty text, especially when a multitude of different objectives governs a comprehensive agreement. Especially the existence of conflicting objectives has led one tribunal to conclude that they cannot provide sufficient guidance for interpretation of specific provisions.62 Therefore, also some of previous expansionist interpretations were based on the preamble. For example, the Tecmed tribunal inferred from the objective of intensifying the economic cooperation, that the FET clause should be interpreted in favour of foreign investors.63 Also, the preamble in CETA, does not give an answer for deciding a conflict of interests. The first three objectives are economic objectives comprising the strengthening of the close economic relationship, expanding the markets through reduction to barriers to trade and investment, and establishing clear, transparent, predictable and mutually-advantageous rules to govern their trade and investments, which could induce expansionist interpretation as in the Tecmed case.

5.2.10 Including an Expressed Right to Regulate The inclusion of the right to regulate is described as one of the key safeguards against investment arbitration’s interference in domestic affairs and as mitigating the above-mentioned criticisms put forward against each standard.64 In the last round of revisions referred to as ‘legal scrubbing’ of CETA and in light of continuing harsh criticism, the right to regulate was elevated from only being mentioned in

Grand River Enterprises Six Nations, Ltd, et al v United States of America, Award (UNCITRAL), paras 69–71. 63 See, e.g. Técnicas Medioambientales Tecmed, SA v The United Mexican States, Award [2003] ICSID Case No ARB (AF)/00/2, para 154. 64 See, e.g. EU Commission, DG Trade, Factsheet on ‘Investment Protection and Investor-to-State Dispute Settlement in EU agreements: A new start for investment and investment protection’, November 2013. 62

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the preamble to the substantive text. The same was done in the EU-Vietnam FTA. Article 13bis is phrased essentially similar.65 Article 8.9 states that ‘1. For the purpose of this Chapter, the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity.’ ‘2. For greater certainty, the mere fact that a Party regulates, including through a modification to its laws, in a manner which negatively affects an investment or interferes with an investor’s expectations, including its expectations of profits, does not amount to a breach of an obligation under this Section. […]’

Further, with regards to trade and environment (Article 24.3) and trade and labour rights (Article 23.2), CETA makes clear that parties shall strive for improving labour as well as environmental standards. However, the relation to the investment protection provisions is not entirely clear. A clear instruction to interpret also the investment chapter accordingly would have been helpful. Article 8.9(2) shifts the burden of proof in that the investor has to proof that the threshold determined in the respective provision is reached. What remains unclear is how to deal with regulatory measures necessary for human rights compliance that are above that threshold and what happens to other than regulatory measures in the pursuance of human rights protections. As to the first question it is in particular unclear whether an all-or-nothing approach is intended or whether even regulatory measures above the threshold can be justified in a balancing process, e.g. when the protected objective is of significant importance. As to the second question, it remains unclear whether this provision only protects general laws, meaning that all other measures, like executive measures in the pursuance of such legitimate policy objectives, are not protected. An explicit carve out would have made things clearer. The list of legitimate policy objectives (‘the protection of public health, safety, environment or public morals, social or consumer protection or promotion and protection of cultural diversity’), although presumably meant to be only exemplary, appears too limited and vague and does not reference human rights law. However, general doubts concerning the impact of such provision remain. If one considers the logic that ISDS tribunals have applied in the past when assessing Article 13bis of the EU-Vietnam FTA: ‘1. The Parties reaffirm the right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, environment or public morals, social or consumer protection or promotion and protection of cultural diversity 2. For greater certainty, the provisions of this section shall not be interpreted as a commitment from a Party that it will not change the legal and regulatory framework, including in a manner that may negatively affect the operation of covered investments or the investor’s expectations of profits. […]’. This provision is also included in the IPA Vietnam, Art. 2.2(1)(2).

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regulatory takings, it is questionable whether an expressed preservation of the right to regulate would make a significant difference. Tribunals have claimed that the investor protection obligations in the given case did not stand in contrast with any other obligation of the respondent state under its own constitution or international law, but that the state was capable of fulfilling both. In fact, not many have argued, that investment treaties require a complete standstill of domestic legislation. When ordered to pay compensation for the regulatory measure adopted, the right to regulate was not deemed to be affected by the investment treaty. Such a reasoning demonstrates that arbitrators do not seem to anticipate that this logic creates a ‘price tag’ (as Gus Van Harten calls it) for legislation which leaves in particular developing countries and countries in transition with less resources and a high demand of legislative change often deadlocked by the so called ‘regulatory chill’. If tribunals continue to find such results as being compatible with the right to regulate, the ‘reaffirmation’ of it (cf. Article 13bis FTA EU-Vietnam), will not change much. Next to the regulatory chill, in the concrete case, regulation pursuing public policy objectives could still be pulled in when the measure in question was not the one with the least impact on the investor or the host state contributed to the condition the measure it is supposed to remedy.66 These caveats against public policy measures are not addressed by the right to regulate provision and might still be applied as in previous practice. Further, a clear stance towards protecting certain human rights measures, such as general regulation in the pursuance of human rights, was not taken. It could have been possible to explicitly exclude such measures from review or set a cap for monetary awards for such measures.67 The right to regulate in the EU-Singapore FTA is in many regards drafted differently: 1. The Parties recognise the right of each Party to establish its own levels of environmental and labour protection, and to adopt or modify accordingly its relevant laws and policies, consistent with the principles of internationally recognised standards or agreements, to which it is a party, referred to in Articles 12.3 (Multilateral Labour Standards and Agreements) and 12.6 (Multilateral Environmental Standards and Agreements).

2. The Parties shall continue to improve those laws and policies, and shall strive towards providing and encouraging high levels of environmental and labour protection. […]’68 This formulation is a major improvement as it spells out specific international standards and agreements. If human rights arguments can be based on such norms, there is a clear legal base for tribunals to take these specific rights into As it was the case in some Argentina crisis cases, see discussion in Chap. 4, Sect. 4.3.3. Gus Van Harten suggests language like ‘this chapter (investment protection) shall not apply to general legislation that is ….’; see Does the EU’s “Investment Court System” put an end to ISDS?; Public debate by Gus Van Harten and Rupert Schlegelmilch, 2015, European Commission DG Trade. Brussels. 68 Article 13.2 (now Article 12.2, FTA Singapore 2018). 66 67

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consideration. It clearly falls under the jurisdiction and the tribunals as well as the party have concrete legal content they can refer to. In the EU-Singapore IPA, the right to regulate in Article 2.2 was adapted to the version CETA. The intended relation between those two different formulations of the right to regulate remains unclear. In sum, the right to regulate is not a reliable protection for human rights. First, on a structural level, in light of previous arbitral practice that did not understand compensations claims as undermining any right to regulate, the reformist potential of a reaffirmation of such right appears marginal. Second, on a concrete level, in light of the vague language used, the omission of clear references to human rights law and the limited scope (e.g. only referring to regulation), many human rights measures will remain in a legal grey zone and the task of dealing with such is passed on to the arbitrators.

5.2.11 Interpretative Declarations To ensure the legislative control, the EU relies extensively on the use of interpretative declarations. Those are either annexed to the agreement or the agreement preserves a right to adopt binding interpretative declaration at a later point. The annex to CETA consists of the so called ‘Joint Interpretative Instrument’ and further 38 unilateral declarations statements.69 First of all, according to Article 31(2) (b) VCTL, the Joint Interpretative Instrument is legally binding and should be taken into account by the investment tribunals. The 38 unilateral statements are annexed to the minutes of the Council and only explain the positions of the EU institutions and some Member States on competence allocation, provisional application or other specific Member States’ interests.70 These statements have not been formally accepted by Canada as the Treaty partner and are therefore of EU internal use. Competence declarations have been relied upon—although not with consistency— by the CJEU.71 The added value of the Joint Interpretative Instrument for the most part seems also limited. Most of the statements on investment protection and the right to regulate merely explain the provisions in CETA or restate them.72 However, the Joint Interpretative Instrument includes some additional obligations, such as the expressed Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States (‘Joint Interpretative Instrument’), Brussels, 27 October 2016, See, http://www.consilium.europa.eu/en/press/press-releases/2016/ 10/28-eu-canada-trade-agreement/?utm_source=dsms-auto&utm_medium=email&utm_ campaign=EU-Canada+trade+agreement%3a+Council+adopts+decision+to+sign+CETA. 70 See, Statements to the Council minutes, Brussels, 27 October 2016, http://data.consilium.europa. eu/doc/document/ST-13463-2016-REV-1/en/pdf. 71 Casteleiro (2012). 72 See, Joint Interpretative Instrument, Points 2, 6, 7, 8 and 9. 69

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commitment to ‘begin immediately further work on a code of conduct to further ensure the impartiality of the members of the Tribunals, on the method and level of their remuneration and the process for their selection’, which should be concluded before the entry into force of CETA.73 Further, it states an obligation to monitor and review provisions74 and to work towards the Multilateral Investment Court.75 In addition, the statement that ‘CETA represents an important and radical change in investment rules’ could support restrictive interpretations and give more weight to intended divergences in that it makes it more difficult for arbitrators to justify a mere continuation of previous conventional interpretations. Canada stressed again the importance to protect its indigenous people as well as Canada’s commitment to keep them actively engaged and pay due attention to their interest.76 Further, an agreement can preserve the right to adopt such declarations also after conclusion. The CETA Joint Committee can adopt interpretations of the investment provision that are binding upon the tribunal following the recommendation of the Committee on Service and Investment. These interpretative powers of such committee have however also been limited in the past. The interpretations by the NAFTA Free Trade Commission have been criticized on one hand as going beyond the ordinary meaning of the texts and thus in the realm of treaty amendment which is acting ultra vires. Further, it has been claimed that through far reaching binding interpretations, the law is changed retrospectively and thus breaches the rule of law.77 Hence, the boundaries set by the texts and potentially by the tribunals might not allow much room for change by subsequent interpretations. Also, the impact of interpretations that are not quashed by the tribunal for the above-mentioned reasons is uncertain, as seen with the interpretation issued by the NAFTA Free Trade Commission in context of the FET standards.78

5.2.12 Exclusion of Direct Effect All of the new generation FTAs explicitly exclude direct effect of their provisions. It has been observed that this practice emerged in parallel with the inclusion of a quasi-judicial WTO-like dispute settlement mechanisms.79 The expressed exclusion of direct effect means that the provisions cannot be enforced through EU and domestic courts by legal or natural persons. This provision makes sure that the only means for invoking the rights enshrined in the agreement are the dispute resolution mechanisms established by the agreement. Due to the restricted See, Joint Interpretative Instrument, Point 6 (f). See, Joint Interpretative Instrument, Points 6 (h) and 10 (a). 75 See, Joint Interpretative Instrument, Point 6 (i). 76 See, Joint Interpretative Instrument, Point 14. 77 Kaufmann-Kohler (2011), pp. 188–189. 78 See, Chap. 4, Sect. 4.3.3.1. 79 Semertzi (2014), p. 1126. 73 74

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standing in investment arbitration, the exclusion of direct effect manifests the sectoral privilege and shields the investment regime from interferences by domestic courts.

5.2.13 The Trade and Sustainable Development Chapter Since the EU-Korea FTA, a Trade and Sustainable Development chapter is included in the new generation of trade and investment agreements. As investment regulation became part of the deep and comprehensive trade agreements, the SD chapter is also covering the former, which is quite a novelty. Following Opinion 2/15, this development has partly been reversed and the trade and investment agreements between the EU and Vietnam and Singapore respectively have been separated in two standalone agreements. The SD chapter is only part of the FTAs, however the references to investment have remained. The new relation between the standalone IPAs and the SD chapter of the FTA requires further exploration. In view of Art. 31(2)(a) Vienna Convention, also the SD chapter should remain relevant for the interpretation of the IPA, especially in light of the explicit references. However, since some provisions in the FTAs as well as in the IPAs cover similar matters such as the right to regulate, one could also argue that according to the lex specialis principle the investment provisions will override the SD chapter. In CETA, the SD chapter clearly remains applicable to the investment chapter. As this book is interested in the potentials of the SD chapter for investment regulation, CETA as the only agreement of that kind that is in force (although preliminary), this analysis is mainly based on the text of CETA. In terms of substance, the SD chapters include, with slight variations, the following reference to social and labour rights: encouragements to use of voluntary CSR mechanisms,80 adherence to the ILO fundamental principles such as the Freedom of Association, the elimination of all forms of forced or compulsory labour, the effective abolition of child labour, the elimination of discrimination in respect of employment and occupation,81 recognition of the ILO Decent Work Agenda82 and the ILO Declaration on Social Justice for a Fair Globalization of 2008.83 In terms of environmental protection, the SD chapter usually reference the Agenda 21 on Environment and Development of 1992, alongside other declaration and announcements on sustainable development.84 It prescribes cooperation between E.g. CETA, Art. 22.3.2(a)(b). E.g. CETA, Art. 23.3.1. 82 E.g. CETA, Art. 23.3.2. 83 E.g. CETA, Art. 22.1.1. 84 E.g. Johannesburg Plan of Implementation on Sustainable Development of (2002) the Outcome Document of the UN Conference on Sustainable Development of 2012 entitled “The Future We Want”, and the outcome of the UN Summit on Sustainable Development of 2015 entitled “Transforming Our World: the 2030 Agenda for Sustainable Development”, see, e.g. FTA Vietnam, 80 81

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the parties as well as exchange of information while taking into account scientific information.85 Further, it includes an obligation to implement effectively the multilateral environmental agreements to which they are party86 and to combat illegal timber trade and fishing.87 In addition, they include specific provisions on climate change and the conversation of biological diversity.88 Further, the SD chapter usually stipulates the right of the parties to maintain their own levels of protection standards.89 This provision makes sure that the trade agreement is not imposing new obligations on the parties and from an EU perspective not harmonizing the EU’s social policy.90 Transparency clauses usually require the parties to publish or make available any information on envisaged state action that affects sustainable development issues, to enable interested persons to comment on it and to examine such comments.91 Additionally, and as discussed in more detail above,92 non-derogation clauses are included that prohibit the encouragement of investment by reducing their domestic social and environmental protection standards.93 In Opinion 2/15, the ECJ made a further novel remark by stating that, in accordance with the rule of customary international law codified in Article 60(1) of the Vienna Convention on the law of treaties,94 ‘a breach of the provisions concerning social protection of workers and environmental protection [give the parties the right] to terminate or suspend liberalisation’.95 This proposition certainly remains true for CETA. As discussed in Chap. 2, the effectiveness of the right to suspension, which was previously explicitly only linked to human rights, has been substantially criticized for its rare and arbitrary enforcement.96 Further, it has to be mentioned that this entails only a right to suspend but not an obligation to act.97 Chapter 2 also discussed the limits of integrating substantive commitments and underpinning institutional set ups with regards to social and environmental rights.98 Being a novel conjunction, the impact of the SD chapter on investment arbitration remains to be seen. The same is true for the cases, in which the FTA and the IPA Article 1 (now Article 13.1.). 85 E.g. CETA, Art. 24.4.3. 86 E.g. CETA, Art. 24.4.2. 87 E.g. CETA, Art. 24.10 and 24.11. 88 E.g. FTA Vietnam, FTA Vietnam, Art. 5 and 6 of SD chapter (now Art. 13.6. and 13.7, FTA Vietnam 2018). 89 CETA, Art. 23.2. 90 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 165. 91 FTA Colombia-Peru, Art. 288. 92 See, Sect. 5.2.7. 93 CETA, Art. 23.4. 94 United Nations Treaty Series, vol. 1155, signed in Vienna on 23 May 1969, 331. 95 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 161. 96 Ghazaryan (2015), p. 405; Hachez (2015), p. 19. 97 T-292/09, Mugraby v Council, ECLI:EU:T:2011:418, 6 September 2011, paras 68, 69. 98 See Chap. 2, Sect. 2.4.1.

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have been separated again. The links between the SD and the investment chapter are usually few and the impact might rather be implicit. For instance, the monitoring bodies of the SD chapter may exert influence for subsequent treaty amendments or interpretative declarations. In CETA, Art. 23.11.5 foresees that the intergovernmental monitoring body of the labour provisions may make recommendations for amendments of treaty provisions to the CETA Joint Committee, which is the overarching intergovernmental body supervising the entire agreement. However, the SD chapter has its own dispute resolution mechanism, which means that breaches of any of these provisions or disagreements should only be solved by the specific dispute resolution mechanism and are excluded from investment arbitration.99 Nevertheless, some explicit references to investment should lead to an increased social and environmental friendly interpretation. For instance, the FTA Vietnam states in Article 9 (now Article 13.1) of the SD chapter that the parties shall enhance the contribution of investment to social and environmental development. On the other hand, it has also been criticised that the language is too broad to serve as benchmarks for evaluation100 and probably for adjudication. Especially when the provisions only speak of encouragement to comply and implement and of recognition of already existing international obligations, there is not much added in terms of clarifying the relation of these international commitment to investment protection. However, the civil society mechanisms that are established by the SD chapters bear considerable potential to alter the perceived imbalance by bringing neglected interests into the evaluation of the entire agreement including the investment chapter. This part of the SD chapter is therefore discussed in detail in Part III.

5.2.14 In Sum: The Place for Human Rights The inattention towards human rights was not remedied by the most recent reforms of EU investment policy. None of the substantive protection provisions is linked to the proper conduct of the investor. The denial of benefit clause is not designed to fill that gap. Apart from the SD chapter, which includes labour and environmental rights, human rights did not gain increased textual recognition. The SD chapter is further excluded from investment arbitration; the precise impact of its interpretative guidance for the investment protection chapter is left for the arbitrators to determine. The right to regulate is not a reliable instrument for human rights protection for those marginalized in the host state but in particular vulnerable to corporate human rights abuse or general adverse impacts of investment promotion. The EU further did not take a clear stance on how to balance public policy objectives and interferences into investments. The expropriation standard only gives guidance on the 99

See, e.g. CETA, Article 23.11 (1). Marx (2016), p. 606.

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determination as to whether an expropriation occurred. It is left open whether state action covered by the right to regulate leads to an exclusion of investment protection or whether it only weighs into a balancing of the right to regulate against interferences into the investment. In case of the latter, there is no guidance on how to conduct balancing (e.g. by applying the proportionality principle or according to the ‘GATT Article XX approach’). Human rights are only mentioned in the preamble, as part of international peace and security and limited to cases of economic sanctions, and as far as they overlap with labour and environmental rights referred to in the SD chapter.

5.3 Reforms of the Arbitration System The EU investment policy comprises a significant overhaul of the arbitration system. The proposals by the Commission including those for a permanent Multilateral Investment Court (‘MIC’) or Tribunal101 as well as the current set-ups in CETA (the so-called Investment Court System; ‘ICS’) are aimed at remedying the major flaws in terms of rule of law and democracy. Besides, these initiatives show that bilateral reforms and innovations of major parts of the global investment regime are indeed possible and that the individual actors are possibly ‘freer than they feel’.102 The real impact remains to be seen but these extensive reforms will be a test-case for what the EU can do as a new actor in the field. This chapter is not discussing these proposals in detail. It remains focused on whether the EU approach acknowledged and remedied the major flaws in the regime as identified in Chap. 4 or developed methods to do so. These major flaws are the systemic ignorance towards human rights other than those of the investor to the detriment of the most vulnerable parts of the population in the host states of the foreign investor.

See, e.g. European Commission, Concept Paper on ‘Investment in TTIP – the path beyond’, 5 May 2015; European Commission, Communication – Trade for all: Towards a more responsible trade and investment policy, October 2015. The EU also launched an impact assessment on 1 August 2016 and a public consultation until 15 March 2017 on the establishment of a MIC, impact assessment: http://trade.ec.europa.eu/doclib/docs/2016/october/tradoc_154997.pdf, public consultation: http://trade.ec.europa.eu/consultations/index.cfm?consul_id=233. CETA, Article 8.29, includes an obligation to enter into negotiations for multilateral investment court. 102 ‘Freer than they feel’ is adopted from Schneiderman (2013), p. 136, who encourages to investigate whether the legal mechanisms of international economic law are indeed as deeply entrenched as often perceived or in fact much more adaptable. 101

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5.3.1 Third Party Participation The EU approach facilitates considerably the participation for third parties. Allowing third parties to file submissions is the rule and independent from the will of the disputing parties. CETA, Article 8.38(2) states that The Tribunal shall accept or, after consultation with the disputing parties, may invite, oral or written submissions from the non-disputing Party regarding the interpretation of the Agreement. The non-disputing Party may attend a hearing held under this Section.

This provision makes clear that in principal the tribunal has to accept any submission by a third party. The consultation of the parties seems to refer only to the invitation. Also, the UNCITRAL Transparency Rules apply to this section. However, Article 8.38 of CETA should be read as lex specialis to the UNCITRAL Transparency Rules, Article 4, which according to Article 8.36(1) CETA consequentially has precedence. One may ask, however, whether the criteria for accepting a submission as laid down in the UNCITRAL Transparency rules, i.e. in Article 4(3) and (5), still have to be taken into consideration.103 According to the UNCITRAL Transparency Rules, Article 4(3), a tribunal shall allow a submission if the third party (a) has a significant interest in the proceedings and (b) the submission would assist the tribunal in finding relevant factual and legal issues. Further, according to Article 4(5), such a submission should not unduly burden the proceedings or unfairly prejudice one disputing party. It is not entirely clear whether these criteria still play a role and if yes, how they should be interpreted. In addition, the previous uncertainties of how to deal with human rights arguments brought forward by third parties are not remedied by the EU proposals. It is still entirely unclear what legal role those arguments should play. There are no procedural rules as to how to respond and if how factual and legal arguments should be taken into consideration. Since there is also little guidance on public policy interests and hardly a mentioning of human rights in the substantive law, it is entirely left up to the arbitrators to decide upon the legal value of such third-party interests. As seen in the past, third party interveners have mostly relied on external legal sources such as human rights law, which still has no expressed legal relevance in the investment regime. It is hard to see how tribunals will now go beyond having human rights ‘read and considered’104 However, it has also been suggested in the context of the WTO that the influence of arguments from amicus briefs should not be underestimated even though ‘the paper might go to the waste bin.’105

Krajewski seems to suggest that this is the case refering to the previous proposal of the Commission, Krajweski (2014), p. 17. 104 As the tribunal did in, UNCITRAL, Grand River Enterprises Six Nations, Ltd., et al. v. United States of America, Award, 12 January 2011, para. 60. 105 Howse (2003), p. 510. 103

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These reforms demonstrate a limited concept of third party participation. Third party intervention is first and foremost perceived as amicus curiae. A direct assertion of human rights of third parties is still not possible. The question whether there should be a full standing of affected parties has not been discussed.106 In most of the cases discussed in the previous chapter in which human rights played a role, they mainly entered the debate (often more the public debate than actually the judicial assessment) because of third party interventions sometimes combined with public campaigning. However, the tribunals are constrained in the use of those arguments if not brought forward and substantiated by the parties to the disputes. As discussed above, especially when this burden is on a corrupt or dysfunctional government, the legal dispute is likely to remain ignorant towards the interests of affected people in the host state. Marginalized groups, like indigenous people, minorities or women that in some countries are hardly represented at the domestic political level, need their own access to the proceeding as otherwise the risk of negating the rights of such groups or perpetuating domestic discrimination by investment disciplines is high. In sum, third party submissions might now be more likely considered. The impact of those submissions however remains unclear. In the absence of any instructions on the role of such arguments and only broad and abstract references to human rights, it is left to the tribunal to evaluate the relevance and the content of human rights claims which not surprisingly forced them in the past to disguise balancing by using vague, legally not clarified terms such as public interest or by selective reference to human rights law. Such amicus curiae submissions are therefore not a reliable shield against violations of human rights as legal entitlements of groups and individuals.

5.3.2 The Reformed ISDS or the Investment Court System The major innovation brought forward by the EU proposal is the so called ‘creation of an independent court system’.107 The ‘CETA Tribunal’ and its ‘Appellate Tribunal’ as established by Section F, Chapter 8 of CETA are thereby seen as an initial and interim step towards the establishment of an ICS.108 The following section briefly analyses the key features of the reforms as established by CETA as to Gus van Harten criticizes this point; see Does the EU’s “Investment Court System” put an end to ISDS?; Public debate by Gus Van Harten and Rupert Schlegelmilch, 2015, European Commission DG Trade. Brussels. 107 DG Trade, EU Commission (2016) Factsheet: Investment provisions in the EU-Canada free trade agreement (CETA), p. 1. 108 European Commission Concept Paper (2015) Investment in TTIP and beyond—the path for reform. Enhancing the right to regulate and moving from current ad hoc arbitration towards an Investment Court, http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF. Accessed 14 March 2019; See also Statement No. 36, Statements to the Council minutes, Brussels, 27 October 2016, http://data.consilium.europa.eu/doc/document/ST-13463-2016-REV-1/en/pdf. Accessed 14 March 2019. 106

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whether they could work towards overcoming structural biases and contribute to the receptiveness of human rights by the investment regime. The future of these reforms is uncertain and whether the EU can pursue these policies depends on one hand on Member States’ support since Opinion 2/15 made clear that ISDS is not part of exclusive EU competence and on the other on the constraints that might be set by Opinion 1/17. 5.3.2.1 Secured Tenure, Random Appointment and Code of Ethics Many of the flaws of previous ISDS that contributed to the lack of independence have been addressed by the new EU investment policy. Those are case-to-case appointment, the total absence of secure tenure, the revolving-door problem and the entanglement of arbitrators with the business community. CETA includes provisions on fixed appointment of ‘judges’ to a permanently established Tribunal and randomized assignment of cases. In CETA, the Joint Committee appoints 15 members for a fix-term of 5 years.109 The selection process itself is not spelled out. The president of the Tribunal, which is appointed by lot on a rotating basis appoints the three arbitrators or judges from that list on a random and unpredictable basis and while ensuring equal participation (Article 8.27(6)). The dependency of the arbitrators on their appointment by the CETA Joint Committee as an executive body that is representing trade interests remains questionable from an impartiality perspective.110 The arbitrators on the list will receive a monthly retainer fee (Article 8.27(12)) and a daily top up. Unless, the CETA Joint Committee decides otherwise, this will be determined by the Regulation 14(1) of the Administrative and Financial Regulations of the ICSID Convention—that is as of today US$3000 per day.111 The total remuneration therefore is still linked to the frequency of claims which only foreign investors can initiate and to the length of the case. For being eligible for appointment, those individuals must have the qualification for judicial office in the home country or be jurists of recognized competence, according to Article 8.27(4), which means they do not have to be judges strictly speaking. The system of renumeration still does not meet the standards of impartiality and independence that are required of judges within the EU (by Art. 47 (2) of the EUCFR and the European Charter on the statute for judges).112

The CETA Joint Committee is established under Article 26.1 of CETA and comprises representatives of the EU and Canada, co-chaired by the Minister for International Trade of Canada and the Member of the EU Commission responsible for Trade; CETA, Article 8.27(2),(5). 110 Opinion 1/17, Opinion of Advocate General Bot (CETA), ECLI:EU:C:2019:72, 29 January 2019, paras 230–232. 111 ICSID (2016) Schedule of Fees. https://icsid.worldbank.org/en/Pages/icsiddocs/Schedule-ofFees.aspx. Accessed 14 March 2019. 112 Art. 6.1 of the European Charter on the statute for judges, adopted on 8 to 10 July by the Council of Europe. This argument has been put forward by Belgium in Opinion 1/17, Opinion of Advocate General Bot (CETA), ECLI:EU:C:2019:72, 29 January 2019, para. 228. 109

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In order to dispel the revolving door and partiality problem, the EU approach relies on a conflict of interest clause. The ‘judges’ are prohibited from also acting as a counsel, expert or witness in any other investment dispute (Article 8.30(1)), but can still be appointed as arbitrators for other cases. The disputing parties (but only them) can file a conflict of interest challenge on these grounds, Article 8.30(2). This clause only solves part of the problem. Serving as an arbitrator in other arbitration proceedings will most likely remain an important source of income. The incentives to please foreign investors in order to get re-appointed are hence not fully dismantled as Gus Van Harten highlights.113 According to Article 8.30, the members of the tribunal shall comply with certain codes of conduct, such as the International Bar Association (IBA) Guidelines on Conflicts of Interest in International Arbitration and a Code of Conduct for arbitrators adopted by Committee on Services and Investment.114 The latter should be adopted as soon as possible and no later than 2 years after the provisional application of CETA (cf. Article 8.44(2) and the Joint Interpretative Instrument). It therefore remains to be seen what the outcome will be. In case the new code of conduct follows the IBA Guidelines, the risks are high that usual impartiality standards will not be met. The IBA Guidelines were made for both commercial and investment arbitration and lag behind the requirements for the public judiciary. To give an example, the IBA Guidelines are organized by colour lists that enumerate circumstances which could constitute a conflict of interest. The orange list includes circumstances that in principle do not constitute a conflict of interest and therefore do not have to be disclosed. One of those cases includes the scenario that the counsel and arbitrator are from the same chamber. A case in point is Bayindir Insaat Turizm Ticaret Ve Sanayi v. Pakistan, in which one of the arbitrators, two lawyers in the defence team as well as the council were from the same chamber.115 This example is highly questionable in terms of impartiality but would not have to be flagged by the IBA Guidelines on Conflicts of Interest in International Arbitration. However, for the majority of scenarios, the new approach manages to ‘cut the link between the judge and the case’.116 Yet, it remains a case-to-case approach that only covers individual conflicts in the concrete case. What remains overlooked are the institutional flaws which lead to a whole system being potentially biased.117 Further, in many of these aspects, the CETA model clearly falls behind the standards

Does the EU’s “Investment Court System” put an end to ISDS?; Public debate by Gus Van Harten and Rupert Schlegelmilch, 2015, European Commission DG Trade. Brussels. 114 The CETA Committee on Service and Investment will be established under Article 26.2(1)(b) of the CETA and should consist of the competent authorities; who that is, is not clarified, cf. Article 26.2(5) of CETA. 115 Eberhardt P, Olivet C, Profiting from injustice – How law firms, arbitrators and financiers are fuelling an investment arbitration boom, November 2012, p. 43. 116 Does the EU’s “Investment Court System” put an end to ISDS?; Public debate by Gus Van Harten and Rupert Schlegelmilch, 2015, European Commission DG Trade. Brussels. 117 Krajewski et al. (2016), p. 131. 113

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that are imposed on a public court in order to ensure impartiality and independency.118 5.3.2.2 No Cognitive Expansion Furthermore, the judges of the CETA Tribunal should possess expertise in public international law and desirably in international investment law, in international trade law and in the resolution of disputes arising under international investment or international trade agreements.119 One problem identified above is the one-sided educational and social background of arbitrators.120 In that regard, it is noteworthy that human rights law is still not included. Previous experience has shown that investment cases often deal with complex human rights conflicts which—as admitted by one tribunal—exceed their limits of expertise.121 The IBA, for instance, just recently released the Practical Guide on Business and Human Rights for Business Lawyers.122 In view of the recurring bafflement with regards to business and human rights issues expressed by arbitrators, such practical guides could be a useful tool to be referenced. It also remains questionable whether the inherent social bias is sufficiently remedied, if all individuals including the ones in charge for appointing and policing the judges still come from the previous arbitrator community or the trade context. More efforts could be necessary to close the knowledge gap and to dismantle the social barrier for alternative interpretations. 5.3.2.3 Transparency as Default A further major shift is the prescription of public hearings and that most of the documents to the dispute must be disclosed.123 To that end, redaction of confidential and protected information and in camera hearings are allowed, subject to the tribunal’s discretion,124 but not against domestic laws of public disclosure.125 Although, the EU As AG Bot rightly observes, it is therefore inappropriate to term the CETA tribunal a ‘genuine court’, Opinion 1/17, Opinion of Advocate General Bot (CETA), ECLI:EU:C:2019:72, 29 January 2019, para. 242. 119 Cf. CETA, Article 8.27 (4). 120 See Chap. 4, Sects. 4.2 and 4.4.3. 121 ICSID, Bernhard von Pezold and Others v. Republic of Zimbabwe, Award, Case No. ARB/10/15, 28 July 2015, para. 57. 122 http://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=420dc178-5f9d-48eb-978e8876feffd8ab. 123 EU-Singapore FTA, Article 2 of the Annex 9-G (now Annex 9, IPA Singapore); CETA, Article 8.36(5). 124 CETA, Article 8.36(5). 125 CETA, Article 8.36(6). 118

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proposal includes the most far-reaching transparency rules of today,126 the problem of secrecy surrounding settlements remains untouched. The latter can obviously also include payments taken from public funds and probably affect regulatory choices.127 5.3.2.4 Appeal Mechanism A further innovation is the creation of a permanent appellate body. Appellate body arbitrators are also randomly appointed by the CETA Joint Committee.128 This appellate body is however only confined to the same agreement.129 As Krajewski points out, appellate bodies that are only linked to one specific agreement might probably not improve the coherence of the whole investment regime.130 Still, this reform is a signal towards other actors, which are moving in that direction (as for instance the US Model BIT that also foresees an appeal mechanism when established at multilateral level)131 and hence may substantially contribute to establishing an international consensus. 5.3.2.5 No Exhaustion of Local Remedy The EU approach does not include an exhaustion of local remedies requirement. Instead only the pursuance of parallel proceedings is prohibited by a fork-in-the- road clause.132 Once investment arbitration is initiated, the investor waives the right to pursue the same claim before domestic or any other international court. However, this formulation of the fork-in-the-road clause still allows the investor to resume to investment arbitration after having failed at domestic level. Thereby, the rationale behind this formulation is not to deter investors from pursing the domestic courts system first.133 Further, by prohibiting parallel proceedings, inconsistencies of outcomes are meant to be avoided, which shows that the proponents of the status-quo investment regime are aware that arbitral awards have the potential to be in contradiction with domestic requirements. Substantive clashes with decisions of domestic

Krajweski (2014), p. 16. Krajewski et al. (2016), p. 138. 128 CETA, Article 8.28(5). 129 CETA, Article 8.28(1). 130 Krajweski (2014), p. 27. 131 Cf. Article 28(10), US Model BIT. 132 CETA, Article 8.22(1)(f), (g). 133 Rupert Schlegelmilch in Does the EU’s “Investment Court System” put an end to ISDS?; Public debate by Gus Van Harten and Rupert Schlegelmilch, 2015, European Commission DG Trade. Brussels. 126 127

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authorities,134 legislation and previous case-law is thus not prevented. An exhaustion of local remedies clause might be the better solution by enabling moderation and balancing of interests through domestic courts and allow for investment arbitration as a complementary means in case investors’ interests have unreasonably been neglected. In addition, an exhaustion of local remedies clause could be waived in cases of systemic failings in the justice systems. In court systems in which there is no evidence of judicial mistreatment of foreign investors, it remains hard to justify setting up a global system of separate and privileged judicial remedy that can only be accessed by certain global economic actors.135

5.4 Conclusion The assessment of the current EU approach in light of the tensions identified in the previous chapter showed that there have been some minor improvements in the substantive law as well as in the procedural set up. Procedurally, one can conclude that the ISDS mechanism was substantially adapted to remedy many of the rule of law deficiencies. Some improvements such as an appeal mechanism and increased safeguards ensuring the independence of the arbitrators may positively affect human rights protection. However, human rights holders as such remain excluded from investment arbitrations. Some of the rules on amicus curiae submission have improved,136 but without a legal base for integrating human rights they might not be able to constitute a reliable way of enforcing human rights. Such a legal base for human rights integration in the substantive law is still missing. It seems rather unlikely that pursuant interpretive guidance issued by the parties in according with the Joint Interpretative Instrument can bridge this gap. This analysis showed that the EU approach did not lead to increased textual authority for integrating human rights claims and does not provide sufficient methodological guidance. Although the Urbaser case presents a positive example of how the reforms have been acknowledged by arbitral practice and prompted novel and progressive rethinking of traditional interpretations, such recognition of certain trends depends on the discretion of the arbitrators. The EU approach shied away from taking a clear stance on many of the debates identified as counter movements in Chap. 4 which appear to be fragile without the necessary textual legitimacy. Further, many open formulations were kept or newly included, which may undermine some marginal A prominent example are those cases in which ISDS tribunals awarded damages to investors on whom a fine was imposed by national authorities or by the EU Commission in accordance with EU competition law. For a detailed discussion, see Kube and Cross (2018), pp. 29–30. 135 Also see the discussion on the exclusion of small and medium enterprises, Opinion 1/17, Opinion of Advocate General Bot (CETA), ECLI:EU:C:2019:72, 29 January 2019, paras 220–223, 252–259. 136 E.g. CETA, Article 8.38(2). 134

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improvements with regards to the right to regulate as they seem to merely shift the locale for arbitrator’s discretionary judgments to a different level. The limited reference to human rights law (only in the preamble, the parties’ understanding of international peace and security (annexed to CETA) and the SD chapter) fail to provide a clear textual instruction for arbitral practice or any other adjudicator on how to approach human rights arguments, which is worsened by the failure to overcome the knowledge gap and to expand the social cohesion of adjudicators. However, human rights integration is not limited to references to human rights law. Rather, as seen in the previous chapter, making the current investment regime compliant with non-discriminatory human rights protection may require recalibrating certain provisions as well as their systemic interrelations and to assess the impact of the regime as a whole. The current outcomes of the EU investment policy making do not create the impression that the systemic tensions were adequately assessed and understood. A comprehensive method or concept of how to work towards establishing a balance of rights protection seems missing. This shows in particular in cases in which some improvements are included but yet at the same time other provisions expand the investor privilege again (for instance by requiring substantial business activity in the territory next to a broad jurisdictional clause and in the absence of a definition of ownership). Also, the lack of attempts to accommodate specific contexts and specific needs of vulnerable groups is puzzling. Currently, the safeguarding of particular interests that need special protection depends entirely on the sensitivity towards these issue and negotiation power of the treaty partner. The difference between Canada’s emphasis on the protection of aboriginal rights and the neglect of any similar approach in the FTA Vietnam demonstrates how this imbalance is manifested. However, alternative formulation of protection provisions that require the adjudicator or even the investor to pay due attention to human rights and in particular to vulnerable groups are possible. In the absence of transparent methods for countering the systemic disregards, the EU approach fails to address the core of the problem. Many of the human rights problems were not even identified. The focus has clearly been on concerns about the right to regulate and on ISDS reforms. Nevertheless, in the absence of substantive law, the reforms of ISDS appear to not be capable of overcoming the problem of IIL that is aggravating existing discrimination at local level; the procedural reforms do not include legal standing for third parties and the substantive reforms did not add sufficient legal bases for articulating their interests. Many of the marginal improvements depend on case-to-case negotiation. Further, it is questionable whether such marginal adoptions can actually influence arbitral practice or whether these minor reforms rather serve to justify the maintenance and expansion of a highly contested regime. The question arises as to how the EU can overcome this limited approach. How can the obligations to integrate human rights into investment policy making actually be operationalized in an EU reform process? How can the constitutional mandate of indiscriminate and global human rights protection and promotion be applied when entering a legal regime that continues to disregard human rights of the most vulnerable parts of society? It is these questions that Part III aims to answer.

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References Casteleiro AD (2012) EU declarations of competence to multilateral agreements: a useful reference base? Eur Foreign Aff Rev 17:491–510 De Luca A (2014) Umbrella clauses and transfer provisions in the (invisible) EU Model BIT. J World Invest Trade 15:506–533 Ghazaryan N (2015) A new generation of human rights clauses? The case of association agreements in the eastern neighbourhood. Eur Law Rev 40:391–410 Hachez N (2015) Essential elements’ clauses in EU Trade Agreements making trade work in a way that helps human rights. Cuad Eur Deusto 53:81–106 Howse R (2003) Membership and its privileges: the WTO, Civil Society, and the Amicus Brief Controversy. Eur Law J 9:496–510 Jacob M, Schill S (2015) Fair and equitable treatment: content, practice, method. In: Bungenberg M, Griebel J, Hobe S, Reinisch A (eds) International investment law. Nomos, Baden-Baden, pp 700–763 Johnson L, Sachs L (2015) International Investment Agreements, 2013: a review of trends and new approaches. In: Bjorklund AK (ed) Yearbook on International Investment Law & Policy, 2013–2014. Oxford University Press Kaufmann-Kohler G (2011) Interpretive powers of the free trade commission and the rule of law. In: Bachand F (ed) Fifteen years of NAFTA chapter 11 arbitration, IAI international arbitration series No. 7. Juris, New York, p 175 Krajewski M (2014) Modalities for investment protection and Investor-State Dispute Settlement (ISDS) in TTIP from a trade union perspective. Friedrich-Ebert-Stiftung, Brussel. http://isds. bilaterals.org/IMG/pdf/-23.pdf Krajewski M, Hindelang S, Van Harten G (eds) (2016) The European Commission and UNCTAD reform agendas. In: Shifting paradigms in international investment law: more balanced, less isolated, increasingly diversified. Oxford University Press, pp 128–141 Kube V, Cross C (2018) Is the arbitration clause of the Energy Charter Treaty compatible with EU law in its application between EU Member States? Analysis Umweltinstitut Münch. https:// www.academia.edu/36226893/Is_the_arbitration_clause_of_the_Energy_Charter_Treaty_ compatible_with_EU_law_in_its_application_between_EU_Member_States Marx A (2016) The protection of labour rights in trade agreements: the case of the EU-Colombia agreement. J World Trade 50:587 Muchlinski P (2016) Negotiating new generation international investment agreements. In: Hindelang S, Krajewski M (eds) Shifting paradigms in international investment law. Oxford University Press, pp 41–64 Schneiderman D (2013) Resisting economic globalization. Palgrave Macmillan Semertzi A (2014) The preclusion of direct effect in the recently concluded EU free trade agreements. Common Mark Law Rev 51:1125–1158 Stifter L, Reinisch A (2016) Expropriation in the light of the UNCTAD Investment Policy Framework for Sustainable Development. In: Krajewski M, Hindelang S (eds) Shifting paradigms in international investment law: more balanced, less isolated, increasingly diversified. Oxford University Press, pp 81–96 Waincymer J (2009) Balancing property rights and human rights in expropriation. In: Dupuy P-M, Petersmann E-U, Francioni F (eds) Human rights in international investment law and arbitration. Oxford University Press, pp 275–309

Part III

Resolving the Failures, Utilizing the Possibilities: Two Proposals

Broad constitutional and foundational principles gain precise shape when put into context.1 So does the external human rights commitment of the EU in the context of international investment regulation. Chapters 4 and 5 have identified the human rights failures existing in the international investment law regime, which the EU appropriates by entering the field as a new lawmaker without undertaking the necessary reforms. Investment regulation as it developed until now is a particular exclusionary regime. Some interests hardly enter the regime—neither at the implementation stage nor during investment adjudication. That is due to restricted procedural rules and the absence of sufficient relevance granted to human rights interests by the underlying substantive law. These ignored interests have little chance to influence the making of such rules. International investment law is therefore a prime example of what matters is ‘who gets access to the means by which ‘international law’ is made.’2 Considering this imbalance of rights protection, this part confronts the questions of what remedies the EU must and can develop based on its constitutional mandate of human rights protection, equality and non-discrimination that should inform investment policy making. There are in particular two strategies that can bring the EU closer to the fulfillment of its external human rights commitment by targeting the root causes of the regime’s imbalance. This is on one hand a comprehensive assessment of all interests affected, which has to be fed into the policy making and implementation and on the other hand a proper engagement with those individuals and communities that are likely to be affected but are being disregarded. Giving voice to the disregarded is especially important, because many of the clashes as seen Chap. 4 are the result of complex interrelations including domestic specifics or remain concealed (e.g. in private contracts and stabilization clauses). Further, strengthening the right to regulate is a necessary but not a sufficient means to ensure accessibility for all human rights at stake. This part argues that these two strategies are already embedded in EU law. Partly, the EU is therefore under an obligation to apply this approach to EU investment Von Bogdandy (2010). Schneiderman (2016), p. 27.

1 2

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policy making. Partly, the strategies proposed here go beyond legal obligation, but are legally possible. Thereby, this part demonstrates that the EU external human rights commitment can be pinned down into concrete requirements when seen in conjunction with other constitutional principles and when put into concrete context. Chapter 2 outlined that the EU external human rights framework comprises the duty to respect which requires assessment and corresponding adjustment of policies and the duty to promote human rights externally. The latter comprises a prohibition of regression, a duty to be coherent and to actually contribute to the advancement of human rights whenever the EU decides to act in the pursuance of the latter. As it will be explained in this part, in the given context of the EU entering the international investment regime that translates into a duty of continuous assessment and adjustment of policies, which is a continuous legal obligation. Further, the EU could realize its duty to promote by engaging in the empowerment of the disregarded human rights-holders. The latter remedy is only one way of realizing the EU’s obligation, which can turn into the only way of sufficing this obligation depending on the concrete circumstances. The analysis of this part adds to this framework by distilling further procedural requirements from other EU constitutional principles and substantive rights as well as applicable international human rights law. Considering the existing human rights tensions against the background this framework, brings to the fore on one hand the inconsistencies between the human rights requirements and EU action and on the other the possibilities that the EU framework provides which are far from exhausted. Resolving the inconsistencies is necessary to bring the EU action in line with its constitutional requirements. Exploring the possibilities shows that the legal environment already bears the potential for the EU to design and develop legal mechanisms and institutions that can cure some of the most prevalent inequalities perpetuated by the current global investment regime. This part sets out to do both by presenting two proposals for bringing the EU investment policy in line with is constitutional human rights commitments. Instead of relying on the facilitation of amicus curiae interventions or carving out domestic policy space (which are, as identified in Part II, not sufficient for solving the major inequalities of the international investment regime), this part explores whether other mechanisms that are embedded in other EU law requirements and that already exists in EU trade agreements can be harnessed to grant access to underrepresented but affected people and their interests to the making and implementation stages of investment agreements. These mechanisms are human rights impact assessments (HRIA) that are conducted prior the conclusion of investment agreements and ex post civil society meetings and domestic advisory groups that are being established by the Sustainable Development chapters (SD chapters) in EU trade agreements to monitor and evaluate the latter. There are other strategies that might also work for bringing the EU as an actor in international investment regulation in compliance with its human rights commitments. There might also be other mechanisms to pursue the strategies proposed here. It is likely that a combination of several mechanisms and strategies yields the best results. However, this part is concerned with these two proposals to make the discussion about the external human rights commit-

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ment and its legal consequences concrete and to demonstrate that a reform is possible, that it can even be built on existing mechanisms and that an ambitious approach can have substantial emancipatory and empowering effects for those previously disregarded. This, in turn, should show that the hands of the EU might be less tied than expected and that—in light of what is possible—the burden for justifying inaction might weigh heavier. However, this part also demonstrates that while the legal framework provides a sufficient basis for developing these strategies, the two mechanisms analyzed here so far failed to deliver this promise in the investment context. That is because they did not sufficiently capture the link between EU obligations and the multiple threats for human rights stemming from the international investment regime (conceptual shortcomings) and because of inconsistencies in their implementation (implementational shortcomings). This part therefore analyses what parameters need to be changed in order to utilize these mechanisms for building sustainable institutions that enable marginalized local communities and individuals to participate and to contest the making and implementation of international investment regulations. Thereby the reformed versions of these institutions may balance the inequality of rights protection—that is missing at the level of investment arbitration and often at domestic level. The discussion carefully differentiates what between the parts that are required by the EU human rights framework and those that are grounded in EU law but are optional or depend on more concrete assessments. In the proposed version of both mechanisms, the major vehicle for overcoming the inequality of human rights protection are the two strategies of comprehensive assessment and empowerment of the rights-holder. As discussed in Chap. 2, these two strategies are particularly apt to respond to warranted criticisms of regulatory imperialism. Both chapters first present the legal and theoretical framework, which should inform the two mechanisms. The framework brings together the human rights requirements established in Chap. 2, other EU constitutional and procedural principles that gain substance through the human rights framework as well as external sources (i.e. international human rights law and discourse that is applicable to the given context). Secondly, each chapter analyses the EU implementing rules and the set-up, the practice and the concept of these mechanisms while measuring them against the requirements of the previous established framework. The practice is assessed by way of looking at some test cases. The practice is reviewed against the EU implementing rules and the legal constitutional and theoretical framework. The last part links the proposals to the most prevalent human rights problems outlined in Chap. 4 and discusses the contribution they could make for solving those, especially when compared to the other proposals and reforms already adopted by the EU (and as discussed in Chap. 5). Thereby this part of the book demonstrates how the EU human rights obligations as abstract principles can be operationalized and how they can be legally measured.

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References Schneiderman D (2016) Global constitutionalism and international economic law: the case of international investment law. In: Bungenberg M, Herrmann C, Krajewski M, Terhechte JP (eds) European yearbook of international economic law 2016. Springer, Heidelberg, pp 23–43 Von Bogdandy A (2010) Founding principles of EU law: a theoretical and doctrinal sketch. Eur Law J 16:95–111. https://doi.org/10.1111/j.1468-0386.2009.00500.x

Chapter 6

Assessment and Participation Through Human Rights Impact Assessments

Abstract States and international organizations have for some time promulgated Human Rights Impact Assessments (HRIA) as the major instrument for bringing trade agreements in line with human rights obligations. This chapter explores the role that the EU approach to HRIAs is playing and can play in overcoming the inequality of rights protection in the international investment regime. In order to do so, HRIAs must be able to comprehensively assess all interests at stake and empower those that are underrepresented. This chapter tests the EU theory and practice for whether they are fit to do so. First, this chapter outlines briefly the international norms and discourses on HRIAs (Sect. 6.2.1) and relevant constitutional principles of EU law (Sect. 6.2.2)—both with a focus on the inclusivity and empowerment dimensions. This is the legal framework which the EU rules and practice will be measures against. In order to so, the chapter clarifies which rules make up the EU legal and soft law framework for HRIAs, divided into the rules on design, on procedures and on the legal nature or in other words the legal consequences (Sect. 6.3), bringing to light the conceptual shortcomings. The section on the EU practice finds further shortcomings at the implementation stage in terms of the substantive scope that is applied, in terms of participation and representation, in terms of transparency and independence and those shortcoming that flow directly from the conceptual limitations (Sect. 6.4). However, by exposing the linkages between HRIAs and the inequality problem of EU investment policy also the potentials become visible. This chapter therefore also aims to highlight the possibilities for reforms—from marginal to more imaginary.

6.1 Introduction HRIAs as the object for this analysis is particularly informative because it can be seen as the means of choice in the preparation phase for bringing EU trade and investment policy in line with its human rights obligations. Further, HRIA, although having been used since the WTO legitimacy crisis in 1999, they were recently

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reformed by the EU explicitly to implement Article 21 TEU.1 It is therefore revealing to analyze the methods employed to do so and the results for grasping the current EU approach to implementing Article 21 TEU. In addition, HRIAs are a well-known and well-tested tool within the trade context. They are therefore a good example for reviewing the potential gains for human rights that result from the merger of trade and investment regulation. Further, because HRIA is a mechanism that is already used precisely as a human rights compliance tool, this proposal can build on existing structures and suggest feasible reforms. As indicated above, this chapter examines whether the rules and practice of HRIA comply with requirements of the EU human rights framework, namely if they sufficiently identify and target the human rights shortcomings of the current approach, which have been set out in Chaps. 2 and 5. First, the rules on HRIAs are measured against the substantive and procedural requirements that gain shape through the interpretations by the relevant international human rights bodies and respective literature and other EU procedural principles that are applicable to investment policy making. ‘Rules’ in this context means the policy documents in which the procedures and the meaning of HRIAs are described. The relevant documents for the conduct of HRIA are the 2015 Better Regulation Agenda (BEA),2 the 2016 sustainability impact assessment (SIA) handbook3 and the 2015 Guidelines on Human Rights in Trade SIAs (EU Guidelines on HRIA). As of yet, no secondary legislation has been adopted in this context. The legal quality of these Commission- internal policy documents is discussed below. Subsequently, some illustrative examples are being analysed. This chapter is not aiming to comprehensively assess the usefulness and the effectiveness of the HRIA practice of the EU on the ground and therefore on an empirical level, which would go beyond the scope of this book and is not necessary for the analysis conducted here. This analysis is concerned with how the EU human rights obligations can and should be operationalized in the investment policy making cycle. Clearly carving out why these HRIAs should be conducted, i.e. linking the practice back to the constitutional requirements they are meant to fulfil, will however provide benchmarks for future research on assessing the practice and for legally challenging identified shortcomings.

1 Point I.1 of Council of the European Union, ‘EU Action Plan on Human Rights and Democracy (2015-2019)’ (2015) 10897/15 3. 2 All documents and the toolbox can be found here: http://ec.europa.eu/info/strategy/better-regulation-why-and-how_en. The specific tools are cited when mentioned in this section. 3 DG Trade, EU Commission (2016).

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6.2 The Legal Framework 6.2.1 The International Human Rights Approach to HRIA For the EU to assess its compliance with international human rights, the practice of HRIAs should be informed by the international human rights discourse in that field. Further, these elaborated concepts give guidance on how to operationalize specific EU human rights and fundamental rights obligations. The UN Guiding Principles on HRIA (‘UN GP on HRIA’) are an important source for several reasons. First, the EU guidelines generally encourage consulting UN bodies4 and specifically endorse the UN GP on HRIA.5 Second, because the reports of UN bodies such as those of the UN Special Rapporteurs (‘UN SRs’) have in the past proven to be of great impact for the interpretation of UN human rights conventions.6 Third, the UN Guiding Principles on HRIA are based on an extensive consultation of Member States, United Nations departments and agencies, national human rights institutions, civil society and other stakeholders.7 Finally, they are based on existing human rights obligations and meant to provide practical guidance for discharging international human rights obligations.8 The UN GP on HRIA establish the following requirements. The procedures of HRIAs should be stipulated in legislation.9 According to the UN SR for the right to food, Olivier de Schutter, it should not be entirely left for the executive branch to design the content and procedures. Also the Thematic Report to the Human Rights Council ‘on the adverse impacts of free trade and investment agreements on a democratic and equitable international order’ recommends making guidelines on HRIA legally binding.10 Further, any HRIA should include the normative content of human rights as elaborated by the respective judicial or non-judicial bodies.11 Reference to development goals and poverty reduction is not enough.12 The precautionary principle should be applied.13 The procedures for gathering the facts should fulfil the 4 DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 10. 5 Ibid., p. 14. 6 Alston and Goodman (2013), p. 718 et. seq. 7 Schutter OD, Human Rights Council, Report of the Special Rapporteur on the right to food, Addendum - Guiding Principles on Human Rights Impact Assessments of Trade and Investment Agreements, A/HRC/19/59/Add.5, 19 December 2011, p. 4. 8 Ibid., p. 4. 9 Ibid., para. 3. 10 Alfred-Maurice de Zayas, Thematic report to the Human Rights Council on the adverse impacts of free trade and investment agreements on a democratic and equitable international order, A/ HRC/30/44, para. 62(j). 11 Schutter OD, Human Rights Council, Report of the Special Rapporteur on the right to food, Addendum - Guiding Principles on Human Rights Impact Assessments of Trade and Investment Agreements, A/HRC/19/59/Add.5, 19 December 2011, para. 5.a. 12 Ibid., para. 5.1. 13 Ibid., para. 3.2.

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following minimum requirements: They should be independent, ensure inclusive participation, be as transparent as possible and be equipped with the necessary expertise and funding.14 Further, it must be guaranteed that they are actually fed into the decision-making processes.15 Therefore, the ‘status’ that HRIAs enjoy in the policy formation cycle is crucial. The UN GP on HRIA elaborate on the inclusion and the impact of the results of a HRIA to the final decision making in more detail. They prescribe a transparent balancing of negative human rights impacts with other policy choices to be conducted by the legislator and the executive, which can be held accountable by their choices.16 It is essential for a HRIA to be conducted at a stage when incompatibilities can still be removed.17 Further, while confirming that setting priorities and deciding about acceptable trade-offs is a prerogative of the government, the UN GP on HRIA state that certain limits must be respected. Concretely, the UN GP on HRIA set the following limits: First, the discretion may be limited (i.e. by absolute rights, the essence of a right or non-discrimination requirements).18 Second, the process of balancing these objectives has to be a democratic one that includes ‘the most vulnerable segments of the population and women’.19 Third, while it is likely and might be acceptable that investment agreements benefit certain groups more than others, the policy choices must not exacerbate unequal and discriminatory outcomes. Fourth, a retrogression of human rights standards demands specific justification.20 Lastly, costs of human rights decline should be shared fairly across all groups of society.21 Further, the precautionary principle might entail that safeguards are to be included when the result are ambiguous or leave room for doubts.22 Hence, the UN GP on HRIA set clear normative limits on the policy maker that follow from certain results and that should guide the policy options. Above all, the policy makers must remove incompatibilities23 and in case that cannot be achieved, refrain from concluding agreements.24 This is another reason, why HRIA must be conducted at a stage when real policy adaptions are still possible.25 This book considers the limited legal scholarship explicitly dealing with HRIA for trade agreements, although comparing HRIAs conducted by business actors or impact assessment in other policy fields may be useful for identifying best practices. However, such a comparative analysis goes beyond the scope of this book and Ibid., para. 4. Ibid., para. 4.7. 16 Ibid., paras 3, 4.3 and 5.c. 17 Ibid., para. 3.2. 18 Ibid., paras 6.4, 6.5. 19 Ibid., para. 6.3. 20 Ibid., para. 6.6. 21 Ibid., para. 6.7. 22 Ibid., para. 3.3. 23 Ibid., para. 3.2. 24 Ibid., p. 5. 25 Ibid., p. 8. 14 15

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would only be ancillary to the main question of this analysis. This part of the book is concerned with demonstrating how the EU human rights obligations as abstract principles can be operationalized and how they can be legally measured. Therefore, this section relies on the comprehensive comparative research on HRIAs crossing different sectors and actors conducted by James Harrison.26 Further, Simon Walker has developed a methodology especially for ex ante HRIA for trade agreements based on international human rights.27 Conducting impact assessments of policy measures has become a relatively wide-spread practice amongst states, international organization and non-state actors. Human rights impact assessments are distinct in that they there are based on a normative framework of state obligations. HRIA are only one tool for measuring human rights compliance, but they are particularly useful for policy fields in which the relations between state action and a human rights violation is not always obvious.28 According to Harrison’s comprehensive survey on what constitutes the overlapping concept of good practices, HRIA should at a minimum follow these eight core elements in order to ensure that they actually lead to human rights advancement.29 Yet, Harrison also stresses that no uniform process that is equally applicable to all policy fields has yet emerged, and that they in fact should remain context- dependent.30 The process of the HRIA used by the EU in the context of investment policy making should therefore be informed by the specific EU obligations and objectives applicable in this context. However, Harrison’s overview is especially informative because it builds on a common understanding of what is necessary to fulfil the duty to protect and promote international human rights. These are also the two pillars of the EU human rights framework. Further, Harrison has also observed that the major risk for failing to meet these two duties is a tendency to treat HRIAs as a ‘bureaucratic tick-boxes exercise’ or to use them to ‘justify a decision that has already been taken, rather than as a tool for informing decision-making processes.’31 To counter these threats, his eight core elements give guidance on what should be included as a minimum. The central elements are inclusive consultation and the formulation of concrete conclusions and recommendations. Concrete conclusions are necessary on one hand for the policy makers to formulate and identify the appropriate responses and on the other for the public to hold the policy makers accountable.32 Consultation is essential because it is not merely part of evidence gathering, but a defining element of HRIAs. Next to the assessment function, HRIAs are meant to ‘encourage the participation in policymaking of the people affected, enhancing

Harrison (2011); Harrison and Stephenson (2010). Walker (2009). 28 Harrison (2011), p. 163. 29 Ibid., p. 172. 30 Ibid., p. 165. 31 Ibid., p. 171. 32 Ibid., p. 178. 26 27

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their empowerment and the legitimacy and ownership of policy choices.’33 Further, the rationale behind HRIAs is precisely not to be limited to aggregate welfare assessments but to focus the assessment on negative human rights impacts for the most vulnerable and usually excluded parts of the population and to feed those evidence-based human rights implication into the decision making cycle of policy fields in which human rights are traditionally marginalized.34 The importance of consultation and the inclusion of marginalized groups are usually recognized in the applicable guidelines, however the instructions are often general and abstract as to how to actually eliminate barriers to consultations.35 It is therefore crucial that policy makers can explain in a transparent manner how the consultation were conducted and how the most vulnerable and marginalized groups of the population were approached. Further, the following steps have been identified in the literature and by the UN GP on HRIA as best practices: screening, scoping, evidence gathering, analysis, publication, monitoring and review.36 During of all of these phases, the assessment should explicitly refer to international human rights standards and norms with the UN core human rights conventions as a baseline.37 The focus of the assessment should then be narrowed down to the relevant human rights in the screening and scoping processes according to the precise policy options and the legal, political and cultural environment of their implementation. Another difference to other socio-economic impact assessments that are not using a human rights approach is the identification of duty-bearers and rights-holders which is required by the underlying human rights paradigm.38 One important aim of a HRIA is to clearly address the responsible agent for change, even though the attribution of responsibility might not be so clear.39 To make causal connection as visible as possible, the use of human rights indicators is usually recommended.40 However, there is considerable disagreement in the literature and amongst practitioners on the effectiveness of human rights indicators and the usefulness of universal indicators.41 In any case, policy makers should explain the methodology used. Simple annexing lists of human rights conventions does not tell much about Ibid., p. 167. Ibid., pp. 166, 167, 183. 35 Ibid., p. 176. 36 Ibid., pp. 172–179; Walker (2009), pp. 86–103; Schutter OD, Human Rights Council, Report of the Special Rapporteur on the right to food, Addendum - Guiding Principles on Human Rights Impact Assessments of Trade and Investment Agreements, A/HRC/19/59/Add.5, 19 December 2011, pp. 14–15. 37 Harrison and Stephenson (2010), p.15; Walker (2009), p. 30. 38 Walker (2009), p. 32. 39 Ibid., p. 33. 40 Ibid., p. 32; Schutter OD, Human Rights Council, Report of the Special Rapporteur on the right to food, Addendum - Guiding Principles on Human Rights Impact Assessments of Trade and Investment Agreements, A/HRC/19/59/Add.5, 19 December 2011, pp. 11–12. 41 Harrison (2011), p. 178. 33 34

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the approach towards identifying violations. Further, the outcomes of such HRIA should be formulated concretely enough to ‘compel duty-bearers to act to protect the rights of rights-holders and provide justifications for their policies in human rights terms.’42

6.2.2 Other Relevant Constitutional Principles of EU Law The EU human rights framework is intertwined with other general procedural principles.43 In fact, the human rights requirement may be understood as giving substantive content to these abstract principles. The following section concentrates on the procedural rights and principles that are likely to play a role for the specific instrument of HRIA: the duty of care, the duty of diligent fact-finding, the duty to consult, the duty to state reasons and proportionality. As of yet, only the duty of care has been explicitly linked by the General Court and the Ombudsman to HRIAs. However, HRIAs may also function as a means to comply with the other principles and thus a failure to comply with them could amount to a ground for legal challenges of the decision to conclude the agreement. The principles discussed stem from EU primary law, case-law and Ombudsman decisions.44 As of yet, there is no secondary legislation that is implementing these procedural duties and that is applicable to the context of regulating human rights and trade and investment agreement making with the exception of the principle of transparency. The absence of any secondary legislation is also problematic from a fundamental rights perspective to which this chapter turns later. There is a range of soft-law instruments that is specifically relevant for human rights and investment and also linked to the general procedural principles. They are discussed as the implementing rules in Sect. 6.3 and tested against the constitutional principles. 6.2.2.1 Legislative or Administrative Principles? Taking into consideration the decisions and recommendations of the Ombudsman raises the question whether her mandate covers the area of concern: investment treaty making. Treaty making is law making and the procedure leading to an investment treaty is a legislative procedure, albeit a special one.45 According to Article Ibid., p. 167. See, Chap. 2, Sect. 2.3. 44 The Ombudsman’s decisions are based on the European Code of Good Administrative Behaviour, which was approved by the EP in 2011. It is implementing the right to good administration of Article 41 CFR. 45 Article 218 TFEU applies with some derivations as stipulated in Art. 207(3) TFEU; due to the requirement of parliamentary consent it is a special legislative procedure according to Article 289(2) TFEU. 42 43

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228 TFEU, the Ombudsman’s mandate as well as the underlying resolution of the European Parliament (EP), the European Code of Good Administrative Behaviour (ECGAB), only cover instances of maladministration and explicitly exclude legal proceedings. Similarly, also the application of the other procedural principles depends on whether a procedure and a measure are administrative or legislative in nature or on whether the measure is of general scope or effectively concerning one individual person.46 What usually makes matters more complex is that the lines between administration and law making and policymaking are often not so easily determined. However, the process leading to the conclusion of an international agreement is not administrative rule-making or consisting of individual measures; but the preparation of a legislative act, leading to the Council decision to conclude the agreement might be.47 However, the inquiries of the Ombudsman in the context of preparing international agreements have not been contested so far. As to whether the other principles stemming from Treaty law and case law apply to legislative acts of general scope is discussed respectively below. 6.2.2.2 The Duty of Care The duty of care or duty of careful and impartial examination is next to the duty of diligent fact finding the most relevant for the conduct of HRIAs. Indeed, it is the case law on the principle of careful and impartial examination applied to the given circumstances from which the General Court and the Advocate General (AG) in Polisario derived a duty to conduct a prior HRIA. In this case, the General Court also linked the duty of care to Article 21 TEU or more precisely to the limits of discretion imposed on the EU institutions by Article 21 TEU (which for the General Court comprise the EU Charter of Fundamental Rights (CFR) and for the AG only erga omnes norms).48 The principle first emerged in the case law on competition and state aid. Since the ECJ’s articulation of the principle in the hallmark judgment Technische Universität München,49 it is generally conceived as also applying for acts of general scope.50 Today, it is also partly codified as a subjective right in Article 41(1) CFR. Further, the Court has repeatedly stressed in the context of the duty of care that the respect for the procedural guarantees is even more fundamental when the Mendes (2011a), chap. 5; Craig (2012), chap. 12. In Polisario, the General Court qualifies the Council decision as a legislative act, T-512/12, Front Polisario v Council, ECLI:EU:T:2015:953, Judgment of 10 December 2015, para. 72; the Council decision authorising the opening of negotiations is considered a preparatory act, e.g. the refusal to registered the Citizen’s initiative ‘Stop TTIP’ by the Commission on 10th September 2014, http:// ec.europa.eu/citizens-initiative/public/initiatives/non-registered/details/2041?lg=en. Accessed 14 March 2019. 48 See also Chap. 2, Sects. 2.2.2.2 and 2.4.2.1. 49 Case C-269/90, Technische Universität München, ECLI:EU:C:1991:438; Craig (2014), para. 41.27. 50 Craig (2014), para. 41.25. 46 47

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exercise of ‘discretion is only subject to a limited judicial review of the merits, confined to examining whether a manifest error has been committed.’51 In other words, the wider the discretion, the more fundamental is the compliance with procedural guarantees.52 The duty of care comprises first the duty ‘to gather, in a diligent manner, all the factual elements necessary’ and second the duty to ‘examine carefully and impartially all the relevant aspects of the individual case’.53 Therefore, particular in cases of trade and investment policymaking, where the institutions enjoy wide discretion, the duty of care should play an important role. The General Court and the AG confirmed this in the Polisario case.54 According to the General Court, the discretion in that case was especially wide ‘because the rules and principles of international law applicable to the area [i.e. human rights law, right to self-determination and the status of an Occupied Territory] are complex and imprecise.55 Next to the wide discretion, the General Court in Polisario also identified two other circumstances that triggered the obligation to conduct a HRIA in this case.56 First, the many incidents that pointed to a strategy of illegitimate annexation by Morocco towards Western Sahara and the likelihood of human rights violations occurring in that context next to the violation of the right to self-determination.57 Second, the General Court found it important that the EU is by means of the trade agreement contributing to the human rights violations by ‘encouraging and profiting’ from the exploitation of the Western Sahara.58 By way of the second argument, the General Court was responding to the Council’s defence that human rights violations committed by a trade partner are per se irrelevant for the EU and that instead an additional requirement of some kind of ‘involvement’ would be necessary.59 AG Wathelet agreed but relied on different, in his view more appropriate, cases, in particular Spain and Italy v Council, C-274/11 and C-295/11,60 that were also concerning legislative proceedings and that belong—as AG Wathelet quoted—‘to Case C-405/07, Netherlands v Commission, P ECLI:EU:C:2008:613, para. 56; Case T-333/10, Animal Trading Company (ATC) BV a.o v Commission, ECLI:EU:T:2013:451, para. 84. 52 Case C-269/90, Technische Universität München, ECLI:EU:C:1991:438, para. 14. 53 Ibid; Animal Trading Company (ATC) BV a.o v Commission, ECLI:EU:T:2013:451, para. 84. 54 T-512/12, Front Polisario v Council, ECLI:EU:T:2015:953, Judgment of 10 December 2015, para. 225; Case C-104/16 P, Opinion of Advocate General Wathelet, Front Polisario v Council, ECLI:EU:C:2016:677, 13 September 2016, para. 229. 55 T-512/12, Front Polisario v Council, ECLI:EU:T:2015:953, Judgment of 10 December 2015, paras 223, 224. 56 See, also Geraldo Vidigal Trade Agreements, EU Law, and Occupied Territories (2): The General Court Judgment in Frente Polisario v Council and the Protection of Fundamental Rights Abroad. http://www.ejiltalk.org/13901-2/. Accessed 14 March 2019. 57 T-512/12, Front Polisario v Council, ECLI:EU:T:2015:953, Judgment of 10 December 2015, paras 235–246. 58 Ibid., para. 231. 59 Ibid., para. 230. 60 In the former case, the Court of Justice also literally repeats the duty of a proper assessment but without referring to the case law, C-274/11, Spain and Italy v Council, ECLI:EU:C:2013:240, Judgment of 16 April 2013, para. 54. 51

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what the Commission has called the ‘hard core of the EU institutions’ discretion’.61 Nevertheless, he considered that ‘the principles applicable in administrative procedures are applicable mutatis mutandis to legislative procedures’.62 As stated above, this statement may be too simplifying. Nevertheless, there have previously been cases in which the duty of care was applied to proceedings leading to a legislative act of general application.63 Further, as Joana Mendes points out, the duty of care is an objective duty that the decision maker owes to the public interests and should therefore be applied whenever public interests are at stake.64 When following this argumentation, living up to the requirement of Article 21 TEU, that is aligning all specific external policy fields with the general list of objective and principles, inevitably involves a balancing exercise of different public interests, and in turn triggers a duty of care. The Ombudsman in the FTA EU-Vietnam case derived the duty to conduct HRIA and the duty of care not by referring to the previous case law but directly from Article 21(1) and (2) TEU, Article 207(1) TFEU and the 2012 Action Plan.65 Yet, in order for the HRIA to comply with the duty of care, it should be designed in a way that makes sure that ‘the human rights impact assessment is not [merely] a collection of data or a response to public opposition, but rather an analytical tool for demonstrating that all necessary factors and circumstances have been taken into account in framing a policy’.66 To sum up, it is convincing to apply the duty of careful and diligent examination to treaty making and to trade and investment policies. This procedural duty is particularly important and well suited in policy fields in which the institutions enjoy a wide discretion and in which the outcomes are the results of political and economic choices and as such hardly reviewable by the judiciary. It seems particularly apt to control that the obligation to integrate the Article 21 TEU objectives and principles as established by Opinion 2/15 has been complied with in the investment policy making cycle.67 Hence, HRIAs can be part of a carful and impartial examination and a useful tool for discharging (parts of) this duty. As the Ombudsman pointed out, HRIAs can provide a useful ‘analytical tool for demonstrating that all necessary factors and circumstances have been taken into account in framing a policy’.68 Case C-104/16 P, Opinion of Advocate General Wathelet, Front Polisario v Council, ECLI:EU:C:2016:677, 13 September 2016, para. 225. 62 Ibid, p. 223. 63 Case T-369/03, Arizona Chemical and Others v. Commission, EU:T:2005:458, Judgment of 2005, paras 86, 89. 64 Mendes (2016), pp. 432, 433. 65 EU Ombudsman, Decision in case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, paras 11, 13. 66 Ibid., para. 25. 67 Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 143. 68 EU Ombudsman, Decision in case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, para. 25. 61

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6.2.2.3 The Duty of Diligent Fact Finding The duty of diligent fact-finding is closely linked to the duty of care. Comprehensive collection of facts is a prerequisite for an impartial and careful assessment of all relevant factors. However, as the settled case law holds, the Court’s review is not a substitute assessment or a de novo review of the facts; it is limited to manifest errors of assessment.69 Yet, the Court has applied different degrees of intensity of judicial review when assessing the gathering and evaluation of facts by EU institutions prior to decision-making, in other words different things have been conceived as amounting to a manifest error.70 In the leading case, Tetra Laval, a merger control case, the ECJ stated that ‘[n]ot only must the Community Courts, inter alia, establish whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it.’71 As of yet, such an in-depth review of fact assessment has been confined to the areas of competition,72 risk regulation73 and restrictive measures.74 In other cases of general application, the review of the factual assessment has been rather inconsistent. In some cases, a less intense review was applied while stressing that the discretion of the institution also applies to the fact-finding.75 In others, the intensity of review was higher, testing the decision-making process for having taken into consideration all the relevant facts and whether those support the conclusion reached.76 Paul Craig as well as Herwig C.H. Hofmann et al. have observed a general trend in the evolution of the case-law, albeit with some inconsistencies, of increased factual scrutiny.77 However, they also maintain that it remains

Craig (2012), p. 419. On the difficulty to determine general criteria for the intensity of judicial review, see ibid., pp. 432–439. 71 C-12/03 P, Commission v Tetra Laval, ECLI:EU:C:2005:87, Judgment of 15 February 2005, para. 39. 72 C-12/03 P, Commission v Tetra Laval, ECLI:EU:C:2005:87, Judgment of 15 February 2005. 73 Case T-13/99, Pfizer Animal Health SA v Council of the European Union, ECLI:EU:T:2002:209, Judgment of 11 September 2002. 74 Joined Cases C-584/10 P, C-593/10 P and C-595/10, Commission and Others v Kadi, P ECLI:EU:C:2013:518; Joined Cases T-208 & 508/11, Liberation Tigers of Tamil Eelam (LTTE) v Council, EU:T:2014:885. 75 Case C-120/99, Italy v Council, ECLI:EU:C:2001:567, Judgment of 25 October 2001 (which concerned a Council Regulation on fisheries); C-304/01, Spain v Commission, ECLI:EU:C:2004:495, Judgment of 9 September 2004; Joined cases C-27/00 and C-122/00, Omega Air and Others, ECLI:EU:C:2002:161, Judgment of 12 March 2002, para. 65 (concerning a Council Regulation in the area of common transport policy). 76 E.g., C-310/04, Spain v Council, ECLI:EU:C:2006:521, Judgment of 7 September 2006, paras 98, 121, 122 while citing Case C-120/99 Italy v Council (concerning the annulment of a Council Regulation in the area of common agricultural policy). 77 Craig (2012), p. 427; Hofmann et al. (2011), p. 495. 69 70

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difficult to determine general criteria for the intensity of judicial review and that dogmatic clarity is still missing.78 For the question of interest here, that is the determination of the requirements for fact assessment in the field of investment policy, the following points can be made. It is not convincing to limit judicial review and apply a more lenient assessment of manifest errors merely depending on the complexity of a case. In Polisario, as explained above, although it was stated that the complexity would entail a wider discretion, the Court did not apply a discernibly more limited review.79 The rationale behind juridical deference is the separations of powers, which prescribes that genuine policy choices on what social and economic options best suit the public interest are the sole responsibility of the policy maker and not of the judiciary.80 The Court’s task is to ensure that the policy makers, while doing so, remain within the limits of constitutional constraints and are guided by the constitutional objectives. Other elements of decision making that are unregulated by law like concessions in a negotiation process or preferences according to the ideological and publicly legitimized program of the responsible politicians should remain shielded from judicial control provided they do not infringe constitutional limits.81 Yet, both, policy choices as well as fundamental procedural guarantees can be disguised by complex technical assessment. The accurate assessment of the compliance with constitutional limits hence may require delving into complex legal and factual analyses. Further, as the case law on the duty of care (which often conflates the duty of care and the duty to diligent fact finding) repeatedly maintained, the compliance with procedural standards is even more fundamental the wider the discretion of the institutions is.82 Hence, although the discretion concerning the policy choices might be wide, the judicial supervision of the fact-finding process can legitimately still be rigorous and ought to be so.83 The intensity of judicial review should depend on the discretion that is granted by the underlying positive law.84 Further, it should at least ensure that the assessment of facts is complete, i.e. that all legal interests that are protected in the applicable law are considered.85 For investment policy, being linked to the objectives of the common commercial policy (CCP) as well as the objective and constraints of Article 21 TEU, the factors that the EU policy makers should take into consideration, in other words the Craig (2012), pp. 432–439; Hofmann et al. (2011), pp. 498, 499. On the distinction between discretion because of competing public interests or discretion because of complex technical assessment, see Mendes (2016) (who argues for a ‘dialectic link’ between complex technical assessments and public interest appraisals); Fritzsche (2010), p. 364. 80 See, also Hofmann et al. (2011), p. 495. 81 See, also Mendes (2016), p. 422. 82 T-512/12, Front Polisario v Council, ECLI:EU:T:2015:953, Judgment of 10 December 2015, para. 225; Case C-269/90, Technische Universität München, ECLI:EU:C:1991:438, para. 14. 83 For a different take, see Craig (2012), pp. 431–439. 84 Joined cases C-57/00 P and C-61/00 P, Freistaat Sachsen and Others v Commission, ECLI:EU:C:2003:510, Judgment of 30 September 2003, para. 169. 85 Mendes (2016), pp. 449–451.

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p arameters of the margin of discretion, are mapped out clearly. Fundamental rights doctrine and jurisprudence provide further parameters such as clear limits (like absolute rights) or methods of balancing. When fundamental rights are at stake, the choice of methodology for assessing alleged violations is therefore not entirely discretionary. In addition, to conclude from Kadi and Polisario when fundamental rights are likely to be violated a more intense review is generally warranted.86 However, it is important to note that restrictive measures such as in Kadi are effectively concerning an individual person in contrast to investment treaty making. Nevertheless, the more convincing arguments speak for requiring that the facts underlying the assessment of the relevant factors are—as in the merger control cases—accurate, reliable, consistent and complete and that these standards are reviewable by the Court. Further, commentators of the case law on fact finding have also concluded that as long as a robust methodology is used that meets the state of the art of scientific standards, the assessment itself as well as the outcome is less likely to be reviewed.87 Therefore, using an up-do-date methodology for HRIA can be a means for discharging the duty of diligent fact-finding. One source of facts is consultation. The requirements for consultation and for ensuring objectivity in that process are discussed below. For HRIA in the context of investment policy making, the following should be noted from the considerations above. The duty of diligent fact-finding applies to this policy field and to measures of general application. The judicial review of the compliance with this duty should be rigorous, in cases in which it is likely that fundamental rights are at stake and when the discretion for the policy maker is wide. HRIAs can be a useful tool to discharge the duty of diligent fact-finding provided that they are based on a robust methodology and take all the relevant factors into account which include the legal parameters of Article 21 TEU. 6.2.2.4 The Duty to Consult The duty to consult is closely linked to the duty of care and diligent fact-finding. In order to determine what the relevant facts are and to ensure the required completeness, one must evaluate which interests will be affected and which of these interests legally matter and are thus relevant facts. Further, the duty to consult also is an independent duty now enshrined in Article 11 TEU. It must be distinguished however from individual rights of consultation or to participate on the basis of Article 41(2)(a) CFR which have repeatedly been denied in the context of legislative proceedings—unless explicitly prescribed by applicable legislation.88 Article 11(3) TEU stipulates a duty of the Commission to conduct broad consultation in the context of law making. Further, Article 11(1) and (2) TEU provide that requiring all EU institutions to conduct dialogues means to ‘give citizens and For a comprehensive critique of the standard of review applied in Kadi, Fontanelli (2014). Fritzsche (2010), pp. 401–402; Chalmers et al. (2014), p. 432. 88 Craig (2014), para. 41.32. 86 87

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representative associations the opportunity to make known and publicly exchange their views’. These provisions are directed at EU citizens and organizations. While this cannot be necessarily inferred from the wording; especially Article 11(3) TEU only speaks of ‘parties concerned’ and also Article 11(1) and (2) TEU are rather broad. Article 11 TEU is however part of the Title on democratic principles, which first and foremost refers to EU citizens. Article 9 and 10 TEU are clearly directed at EU citizens and concern the role of national parliaments. The consultation and participation principles of Article 11 TEU should therefore be understood as a complementary part of representative democracy (as enshrined in Article 10(1) TEU).89 Nevertheless, since the practice of HRIA is primarily directed at EU citizens, it should comply with the requirements stemming from Article 11 TEU. This means, they need to be open, transparent and be conducted on a regular basis. It is not prescribed that all interests at stake must consulted in a balanced manner. According to Mendes, Article 11 TEU should bring about a shift of perceptions from perceiving consultation as an instrument for better policy making to a legal value that ensures participatory democracy.90 Mendes reads Article 11(1) and (2) TEU as normatively more demanding than the third paragraph, whereas Article 11(3) TEU may be understood as mainly codifying previous Commission practice.91 Further, Protocol No. 2 on the application of the principles of subsidiarity and proportionality annexed to the TEU provides that ‘before proposing legislative acts, the Commission shall consult widely’.92 Consultations are therefore also perquisite for the compliance with the proportionality principle. In the 2002 Commission Communication on General Standards and Minimum Principles for Consultation,93 the Commission highlights that consultations should be conducted while applying the principles of dialogue, transparency and pluralism.94 These standards and principles stress the importance of a proper balance of interests, adequate coverage of those affected by the policy and consideration of specific target groups (e.g. women, ethnic minorities).95 More recently, the Mendes (2011b), p. 8. Ibid., p. 11. 91 Ibid., p. 3. 92 Protocol (No 2) on the application of the principles of subsidiarity and proportionality, annexed to the Treaty on European Union and the Treaty on the Functioning of the European Union by the Treaty of Lisbon of 13 December 2007, Article 2. 93 European Commission (2002) Communication from the Commission: Towards a reinforced culture of consultation and dialogue—General principles and minimum standards for consultation of interested parties by the Commission, COM(2002) 704 final. The Communication is published on the website of DG DEVCO (International Cooperation and Development), which is an indicator of the intention to apply it in the context of foreign policies, see https://ec.europa.eu/europeaid/communication-commission-towards-reinforced-culture-consultation-and-dialogue-general-principles-and_en. Accessed on 14 March 2019. 94 Chalmers et al. (2014), p. 406. 95 European Commission (2002) Communication from the Commission: Towards a reinforced culture of consultation and dialogue—General principles and minimum standards for consultation of interested parties by the Commission, COM(2002) 704 final, pp. 19–20. 89 90

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Commission adopted Guidelines on Stakeholder Consultation as part of the Better Regulation Agenda for the implementation of Article 11 TEU and Protocol No. 2, that endorse and concretize these principles.96 Since the guidelines on HRIA implement the Better Regulation Agenda and apply the rules to the specific context of human rights and trade policies (so called ‘third level guidance’), this analysis will concentrate on the guidelines on HRIA. Whether the guidelines in their current formulations as well as their application in practice complies with the requirements stemming from the duty to consult in the context of human rights sensitive investment policy making is assessed in the next section. The requirements for consultation processes should be seen in light of the different underlying principles that consultation is meant to fulfil. In the light of the duty of care and diligent fact-finding, and especially the impartiality requirement, the policy makers must ensure a comprehensive and inclusive integration of input from a plurality of sources.97 The consultation process must investigate into all the public interests indicated by the underlying legislation. The Court98 and the Ombudsman99 have both reproached the Commission for not ensuring a balanced representation of legally relevant interests. The Ombudsman case concerned an allegedly biased structure for gathering information that led to predominantly taking commercial and industry interests into account although the underlying legislation on biofuels refers to the relevance of environmental and social interests. In this case, although the policy proposals were later ‘presented’ to the wider public, the fact that they were previously ‘developed’ in closer cooperation with the industry-dominated research group, led the Ombudsman to question the equality of opportunity to influence.100 In Technische Universität München, the Court criticised the Commission for having gathered the facts in a biased manner by relying on a group of experts that could not provide the knowledge of all the various fields that were potentially affected by the measure in question.101 Mendes aptly infers from these cases that the duty to consult and diligent fact-finding requires the EU institutions to put structures in place that ensure the collection of all relevant or complete facts.102 The principles and objectives anchored in the applicable law show what the relevant facts are. The CJEU can and should review the correct integration of the legal interests expressed by the principles and objectives without unduly encroaching into the space that is left for

See, Better regulation: guidelines and toolbox, http://ec.europa.eu/smart-regulation/guidelines/ ug_chap7_en.htm. Accessed 14 March 2019. 97 As argued by Mendes (2016), pp. 446–447, 451. 98 Case C-269/90, Technische Universität München, ECLI:EU:C:1991:438. 99 EU Ombudsman, Decision of the European Ombudsman closing his inquiry into complaint 1151/2008/(DK)ANA against the European Commission, 9 July 2013, paras 27, 30; For a discussion on the case, see Mendes (2016), pp. 446–448. 100 EU Ombudsman, Decision of the European Ombudsman closing his inquiry into complaint 1151/2008/(DK)ANA against the European Commission, 9 July 2013, para. 192. 101 Case C-269/90, Technische Universität München, ECLI:EU:C:1991:438, para. 22. 102 Mendes (2016), p. 448. 96

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political considerations.103 In contrast to individual rights, this does not necessarily entail that all the representatives of every legally relevant interests must be granted a right to a hearing. To sum up, the requirements for proper consultation are applicable to investment policy making. For HRIA to meet these requirements, the process of collecting the information and facts should be as inclusive as possible. The Commission needs to ensure that the structures for the consultation are built in a way that enables the integration of legally relevant interests.104 Taking into consideration prevailing discrepancies of representation, of already existing links, of knowledge as well as of financial and logistic resources, equal access might require proactive approaches by the Commission. In that regard, the Commission has committed itself to actively seek the input of target groups, i.e. groups that are underrepresented but specifically relevant and affected.105 Further, the timing matters. All of the information and feedback gathered should have the potential of equally influencing the decision-making process. 6.2.2.5 The Duty to State Reasons According to Article 296(2) TFEU, legal acts should state the reasons on which they are based. Following the Explanations to the CFR, Article 41(2)(c) CFR is a restatement of Art. 296(2) TFEU. According to settled case law, the act ‘must disclose in a clear and unequivocal fashion the reasoning followed by the institution which adopted the measure in question in such a way as to enable the persons concerned to ascertain the reasons for the measure and to enable the competent Community court to exercise its power of review’.106 Nevertheless, the duty to state reasons is distinct from the question of substantive legality and hence does not cover the question of whether the reasons are correct.107 The duty of Art. 296(2) TFEU further does not require any form of dialogue, feedback or the examination of the relevant facts and points of law.108 This is especially the case for a measure of general legislative nature; an indication of the objective, legal basis and ‘the general situation’ which led to its adoption (which is often done in the preamble) has frequently been accepted as sufficient.109 In cases of individual decisions and when Ibid., p. 448. See also, Vianello (2016), p. 153. 105 Chalmers et al. (2014), p. 411. 106 Case C-367/95 P, Commission v Sytraval and Brink’s France SARL, ECLI:EU:C:1998:154, Judgment of 2 April 1998, para. 63 with reference to further case law. 107 See, e.g. C-113/00, Spain v Commission, ECLI:EU:C:2002:507, Judgment of 19 September 2002, para. 47 (with further references). 108 Chalmers et al. (2014), pp. 408, 409. 109 Case 5-67, W. Beus GmbH & Co. v Hauptzollamt München, ECLI:EU:C:1968:13, Judgment of 13 March 1968, p. 95; Case C-301/97, Netherlands v Council, ECLI:EU:C:2001:621, Judgment of 22 November 2001, para. 189 (with further reference). 103 104

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fundament rights are at stake—as in the sanction cases—the test is more stringent.110 In the case of trade and investment agreements, it will therefore most likely neither be necessary to refer in detail to the results of a HRIA, nor will there be a need to verify the usually broad assurances of human rights protection and promotion in a preamble by linking them to the results of a HRIA. Also, in Polisario, the General Court found no relation between the duty to state reasons and any obligation to conduct a prior HRIA, instead it deemed the Council decision to be sufficiently supported by reasons.111 Therefore, the duty to state reasons alone does not impose any additional requirements on the conduct of HRIA in context of investment agreements. 6.2.2.6 Proportionality The principle of proportionality has been developed by the CJEU as a general principle of EU law before it was codified in the Treaties and is conceived a fundamental constitutional principle setting a general limit for EU competence.112 According to the proportionality principle now stipulated in Article 296(1) TFEU and Article 5(4) TEU, an EU measure must not exceed what is appropriate and necessary in order to achieve the objective legitimately pursued by the measure in question.113 Furthermore, assessing the legality of interference with human rights and fundamental rights requires a proportionality assessment already by virtue of human rights and fundamental rights law.114 The CJEU has been inconsistent in the application of the proportionality principle and its precise criteria have been disputed.115 Common ground would probably be to require the investment measure in question to be the least harmful while being sufficiently effective to contribute to the legitimate objective of investment liberalization and protection.116 As stated above, the Better Regulation Agenda and the guidelines on impact assessment are explicitly aimed at operationalizing the proportionality principle. However, other impact assessments that are part of the evalua Joined Cases C-584/10 P, C-593/10 P and C-595/10, Commission and Others v Kadi, P ECLI:EU:C:2013:518, para. 118. 111 T-512/12, Front Polisario v Council, ECLI:EU:T:2015:953, Judgment of 10 December 2015, paras 121–126. 112 Hofmann et al. (2011), p. 129. 113 E.g. C-331/88, R v Minister of Agriculture, ex p Fedesa, ECLI:EU:C:1990:391, Judgment of 13 November 1990, para. 13. 114 Article 52(1) CFR; In the ECHR, the proportionality test is enshrined in the individual rights and varies accordingly. For a discussion on the development, the legal theory and the different applications, see Legg (2012). 115 Hofmann et al. (2011), p. 129. 116 C-92/09, Volker und Markus Schecke and Eifert, ECLI:EU:C:2010:662, Judgment of 9 November 2010, para. 86; C-291/12, Schwarz, ECLI:EU:C:2013:670, Judgment of 17 October 2013, para. 53; Opinion1/15, Opinion of Advocate General Mengozzi, ECLI:EU:C:2016:656, 26 July 2017, para. 208. 110

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tion cycle of the investment measure are also concerned with the appropriateness and the necessity of the measure for achieving the envisioned liberalization and protection. The appropriateness and the necessity test are usually applied by the CJEU whereas the third stage is not explicitly applied in a consistent manner.117 The third stage, the proportionality strictu senso, would require balancing the competing interests, i.e. investment protection and human rights protection.118 The results of HRIAs can thus inform the evaluation of the necessity test and the third stage. To be able to do so, they should clearly outline the positive and negative effects the investment agreement has on all interests at stake. 6.2.2.7 Transparency Transparency is a fundamental principle of EU law and has been the focal point for much of the discussion revolving around the EU’s democratic legitimacy. The lack of transparency was a major bone of contention in the Anti-TTIP and Anti-CETA protests and it was during these contestations that the traditional secretive practices were gradually lifted cumulating in the ‘transparency initiative’ launched by Commissioner Malmström.119 The Ombudsman played an important role in pushing the development towards increased transparency forward.120 The EU was soon presented as breaking new ground by conducting the ‘most transparent way ever of negotiating a trade deal’.121 This section does not aim to rehearse the evolution of the principle or its influence on EU trade and investment policymaking. Being focused on establishing the link between the general external human rights commitment and other procedural duties, this section analyses what the principle of transparency adds for conducting HRIAs. Viewing it from this angle, transparency mainly functions as a prerequisite for the compliance with other principles, e.g. for conducting a proper consultation. Transparency is legally anchored numerous times in primary law as well as secondary legislation. These could be used supportively in the process of HRIAs by civil society to gain access to documents or enforce publications. HRIAs should be designed to forestall legal challenges on these grounds. Amongst the general principles that are relevant is first the general requirement of openness that applies to all EU institutions in all their proceedings, Article 15 TFEU and Article 1 TEU. Article Craig and de Búrca (2015), p. 545. Hofmann et al. (2011), p. 130; Craig (2012), p. 670. 119 European Commission Communication Concerning Transparency in TTIP Negotiations ((C-2014 9052 final) 25 Nov. 2014). 120 EU Ombudsman, Transparency and public participation in relation to the Transatlantic Trade and Investment Partnership (‘TTIP’) negotiations, OI/10/2014/RA, 6 January 2015; Keating D (2015) EU ombudsman calls for greater TTIP transparency, POLITICO. http://www.politico.eu/ article/eu-ombudsman-calls-for-greater-ttip-transparency/. Accessed 14 March 2019. 121 See, e.g., when announcing the report on 11th round of talks http://trade.ec.europa.eu/doclib/ press/index.cfm?id=1391. 117 118

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15(3) TFEU stipulates the right of access to documents of all EU institutions, which should be ensured by way of regulation that specifies the principles and conditions. This has been done following then-Article 255(2) of the EC Treaty by Regulation No 1049/2001.122 Art. 42 CFR is based on now Article 15(3) TFEU and therefore also operationalized by the same Access to Documents Regulation. Individuals can thus additionally try to access documents via this route.123 It should be noted in the context of investment treaty making that Regulations No 1049/2001 includes a mandatory exemption for ‘international relations’, which requires the denial of access if a disclosure of information would harm the EU’s international relations with third countries or undermine its positions in international negotiations.124 Further, Article 15(3) TFEU subparagraph 3 requires that every EU institution adopts in its rules of procedure specific provisions that ensure the access to its documents in accordance with the regulation. The Commission amended its rules of procedure with the Decision 2001/937/EC, ECSC, EURATOM of 5 December 2001125 by which EU citizens and residents can request access to documents also relating to HRIAs, which makes it the only secondary legislation that applies to the conduct of HRIA. Further, it is emphasized in Article 15(3) subparagraph 5 TFEU that the EP and the Council are under an additional obligation to ensure the publication of all documents related to legislative proceedings. Article 297 TFEU requires the publication of all legislative measures. Article 298(1) TFEU stresses the importance of especially administrative openness, whereas it is not entirely clear what is covered by the term administration.126 These general principles of transparency and openness likewise apply to the conduct of HRIA. Further, natural and legal persons could request access to specific documents. However, this right only applies to EU citizens or natural and legal persons residing or having a registered office in the EU. Article 41(2)(b) CFR grants a right to access a file that is relevant for a natural or legal person to defend herself against an adverse decision.127 In addition, Regulation 1367/2006 implements the Aarhus Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters, which could be relevant in the context of HRIAs and environmental human rights. The right to access to documents is regulated parallel to the rules on HRIAs and requests will have to be made in accordance with the applicable Decision of the Commission. While designing and conducting HRIAs, the Commission must still Regulation (EC) No 1049/2001 of the European Parliament and the Council of 30 May 2001 regarding public access to European Parliament, Council and Commission documents. 123 See, e.g. Case T-331/11, Leonard Besselink v the Council, ECLI:EU:T:2013:419, Judgment of 12 September 2013. 124 Curtin and Mendes (2014), paras 42.28–42.33; T-301/10, In’t Veld v Commission, ECLI:EU:T:2013:135, Judgment of 19 March 2013. 125 Commission Decision of 5 December 2001 amending its rules of procedure (C(2001) 3714) (2001/937/EC, ECSC, Euratom). 126 Hofmann et al. (2011), p. 171. 127 Craig and de Búrca (2015), para. 41.38. 122

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pay attention to the general principles of transparency and openness. The mandatory exemption for international relations in the Access to Documents Regulation shows that increased secrecy is perceived as legitimate. 6.2.2.8 L inking Principles of Process to the Outcome: Acting Accordingly? The principles outlined above are principles of process. In order to safeguard the room for political, non-justiciable, choices of the legislature, judicial review is limited to manifest errors of assessment during the process of decision-making. However, procedural requirements are to some extent linked to the outcome. The results stemming from a correct decision making process may leave no or only a very limited room for discretion. To some extent, the correctness of the outcome is therefore inevitable also reviewable. This section briefly summarizes how the review of the procedural principles is linked to the outcome of the legislative cycle. The CJEU stated on several occasions that the duty of care and diligent fact- finding requires that the established ‘facts [support] the conclusion reached’.128 In Kadi, where the fact-finding review was rigorous, the General Court also required that the measure in question is sufficiently substantiated by the evidence provided.129 Also, the Ombudsman in the FTA Vietnam case did not stop at pointing to the duty to conduct a HRIA but also maintained that ‘depending on the results of its analysis, the Commission might need to consider appropriate measures which would ensure that no such adverse effects would occur.’130 She continued “when negative impacts are identified, either the negotiated provisions need to be modified or mitigating measures have to be decided upon before the agreement is entered into.”131 In her view, “[c]learly, prior human rights impact assessments are aimed at anticipating and eliminating or avoiding such negative effects on human rights.”132 It is unclear to what extent judicial review would penetrate the final decision. Again, it is settled case law that the CJEU does not conduct a de novo review of the assessment of facts within the limits of legality.133 However, what can be ascertained at this stage and what is likely to be judicially reviewable is that the facts found and DG Trade, EU Commission (2016) Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar, Final Report, http://trade.ec.europa.eu/doclib/docs/2016/december/tradoc_155121.pdf. Accessed 14 March 2019. 129 Chalmers et al. (2014), p. 431; Case T-85/09, Kadi v Commission, ECLI:EU:T:2010:418, Judgment of 30 September 2010. 130 EU Ombudsman, Decision in case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, para. 12. 131 Ibid., para. 25. 132 Ibid., para. 27. 133 Craig (2012), p. 435. 128

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the input received from consultation must at least have the potential to influence the final decision.134 The decision must in theory be based on the facts. Therefore, the structures that operationalize the procedural requirements must be set up as to ensure the influence of the assessment. 6.2.2.9 S ummary of the Parameters Derived from General EU Law Procedural Principles The procedural principles discussed above apply to the context of investment treaty making, albeit or precisely because the Commission enjoys a wide discretion in this field. HRIAs can in many aspects be a useful tool for discharging the procedural duties provided they comply with the requirements. The duty of care and diligent fact-finding could be met by basing the HRIA on a robust methodology. EU Courts should not only review the correctness of the methodology but also its comprehensiveness, meaning, whether it includes equally all the legal interests of Article 21 TEU including human rights. This might require proactive approaches towards target groups (i.e. groups that are likely to be affected but are usually underrepresented) in the consultation and fact-gathering process. The structures for gathering input from consultation must ensure that all legally relevant input has a real and equal potential of influencing the decision-making. Only that way EU institutions can guarantee that the assessment of facts will be impartial and objective. A HRIA should further deliver concrete results concerning the expected positive effects and harms for human rights by a certain measure in order to enable a proportionality assessment. The HRIAs should not disguise any of these procedural steps. They need to be transparent and reviewable by the judiciary. The facts must be linked to outcomes, meaning that the final decision must rest on the finding of the facts. Decisions need to be justified in light of the facts found. Transparency is a prerequisite for successful and genuine dialogue and consultation.

6.2.3 Summarizing the Legal Framework for HRIA The following requirements can be summarized from EU general procedural principles and the specific principles for HRIA from an international human rights perspective. According to EU law as well as international human rights law, HRIAs should cover all legally relevant interests. From this, it can be inferred that the normative content of the legal interests at stake must be clear in order to properly assess and come to robust conclusions as to the interference with human rights and fundamental rights. The EU’s duty to assess and to promote human rights therefore require a HRIA to clearly map out the normative content of the human rights Also, see EU Ombudsman, Decision of the European Ombudsman closing his inquiry into complaint 1151/2008/(DK)ANA against the European Commission, 9 July 2013.

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applicable. Further, it has to apply a robust and state of the art methodology including the different steps as outlined above. On whether secondary legislation is necessary to further qualify the conduct and influence of HRIA both sources differ: UN Guiding principles prescribe it; under EU law, this is only sometimes prescribed, e.g. in the case of the Access to Documents Regulation. That fact could speak for this not being the case in the absence of an explicit requirement. However, any interference with fundamental rights protection requires a legal base (Article 51(2) CFR), which would mean that a legal base is needed if fundamental rights are interfered with during the making of the agreement. The compliance with these requirements is assessed under design. The fact-finding and consultation processes must in principle cover all applicable human rights and fundamental rights. Therefore, it must be ensured that the consultations are as inclusive as possible. They should be aimed at gathering all interests of affected rights-holders, by pro-actively outreaching to those rights-holders and to expert advice. The inclusion of marginalized rights-holders that are easily disregarded is essential. Further, the input must be gathered at a stage where real policy influence is still possible and where equal and balanced consideration can still be guaranteed (‘status’). These requirements will be summarized under procedures. Lastly, the HRIA should outline concrete results. The results should be linked to the decision-making process and the final decision in a transparent way. The latter must not necessarily be regulated by the rules on HRIA, but it could add to the transparency to outline red lines and potential consequences. Whether regulated or not, as we have seen from the EU as well as the UN GP on HRIA, the final decision has to be justified in light of the results. The weighing of the different interests based on the results of the HRIA should be transparent, e.g. by applying a proportionality test. The consultation procedures, transparency and accountability are the basic pillars for empowerment. According to the underlying paradigm of human rights protection and promotion as well as according to the EU duty to promote, human rights instrument should thrive towards empowerment of the rights-holders. The following section is therefore also analysing the soft-law as well as the practice from that perspective. This includes the analysis of how the decision making is linked to the results—in the books as well as in practice. These aspects are analyzed under legal consequences.

6.3 The EU Rules on Human Rights Impact Assessments This section describes the design, the procedures and the practice as well as the conception of HRIAs while measuring them against the requirements outlined above.

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6.3.1 The Design According to EU Soft Law Sustainability Impact Assessments (SIAs) for trade agreements are not a specific EU instrument but are common practice in international trade relations. The massive protests surrounding the 1999 WTO Ministerial Conference in Seattle (which failed and had to be reconvened in Doha in 2001)—expressing increased concerns about the social and environmental impact of free trade and the obscure negotiations in the WTO excluding civil society—are perceived as the turning point that prompted the leading trade policy makers to profoundly rethink how to assess and communicate their trade decisions.135 The Directorate-General for Trade of the Commission (DG Trade) reformed EU trade assessments to systematically include sustainable development factors in response to increasing resistance from EU citizens against a multilateral trade policy that was perceived ignorant towards its effects on developing countries.136 After the stalemate of WTO negotiations in 2008, the main field of relevance for SIAs became bilateral and regional trade negotiations. Since the EU trade policy was expanded to include international investment matters, the latter is also covered by the EU SIA program. The main motivation behind the reform of SIAs was to facilitate a public dialogue and to gather evidence on the—at that time partly perceived as unwarranted—concerns about adverse impacts on social rights and the environment.137 The process of methodological revisions of SIAs by the EU was started in 2003 and the first handbook was published in 2006. In contrast to impact assessments conducted by other states, the EU SIAs included the impact on the trade partner from the beginning.138 However, it is only since 2012 that the EU SIAs include the assessment of human rights. In 2010, the idea of assessing all EU action in light of the CFR was launched139 and in 2011 corresponding guidelines were adopted,140 which were renewed in 2015.141 The previous 2006 handbook on SIA did not include a methodology for assessing the impact on human rights or CFR.142 The 2015 guidelines as well as the 2016 SIA handbook are supposed to close this gap and to respond to the criticism against the previous SIA methodology

Ekins and Voituriez (2009), p. 1. Lamy P (2003) Sustainable Impact Assessment: Towards sustainable development, Speech at the SIA Seminar Borschette Center Brussels. Accessed 14 March 2019. 137 George and Kirkpatrick (2009), p. 64. 138 Ibid., p. 64. 139 European Commission (2010) Communication from the Commission, Smart Regulation in the European Union, COM(2010) 543 final. 140 European Commission Staff Working Paper, “Operational Guidance on taking account of Fundamental Rights in Commission Impact Assessments”, SEC(2011)567, 6 May 2011. 141 European Commission Staff Working Document, “Better Regulation Guidelines”, SWD(2015) 111 final, 19 May 2015. 142 DG Trade, EU Commission (2016), p. 4. 135 136

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that was expressed by civil society, literature and within the EU.143 As of 2016, 22 SIAs have been conducted and 6 are underway.144 The human rights impact analysis as part of the general SIA, that is referred to here as HRIA, is explicitly understood as a human rights compliance tool.145 In its 2012 Action Plan on Human Rights and Democracy, the Council tasked the Commission with the insertion of human rights into the assessment of trade measures.146 In the recent 2015 Action Plan, the Council reiterates the importance of continuing to conduct HRIAs and to improve the methodology thereof.147 The Council has also stressed the importance of carrying out HRIA for ensuring that EU business activities in partner countries comply with human rights standards as part of the rights-based approach that the EU is endorsing: the Council underlines that investment and business activities in partner countries should respect human rights and adhere to the principles of corporate social and environmental responsibility and accountability.148

In the same context, the Council calls on the Commission to conduct HRIA for investment agreements.149 In other words, human rights compliance of EU business and investment activities in partner states is one of the reasons to conduct a HRIA in the context of investment agreements. This is a link to be kept in mind. However, Council conclusions are not legally binding and only reflect political decisions. They are nevertheless of importance for this analysis as they give insights into the meaning of subsequent legislation and policy documents and into how the relevant actors interpret their obligations resulting from primary law.150 As mentioned above, the most recent documents informing the process of HRIAs are the 2015 Better Regulation Agenda, the 2016 SIA handbook and the 2015 EU Guidelines on HRIA.151 The SIA handbook incorporates the prescription of the Ibid., p. 4; The handbook refers to the following in that regard: European Court of Auditors, Special Report No 2/2014: Are preferential trade arrangements appropriately managed?, 22 May 2014; European Commission (2015) Summary of Responses: Public consultation on the update of the Handbook for Sustainability Impact Assessment. 144 For a current overview, see http://ec.europa.eu/trade/policy/policy-making/analysis/sustainability-impact-assessments/. Accessed 14 March 2019. 145 DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 5. 146 Point 1 and point 11a, Strategic Framework and Action Plan on Human Rights and Democracy of 25 June 2012 (2012 Action Plan) http://data.consilium.europa.eu/doc/document/ST-118552012-INIT/en/pdf. 147 Point 25 b) and 28a), Council Conclusion on the Action Plan on Human Rights and Democracy 2015–2019 (2015 Action Plan). 148 Council conclusions on a rights-based approach to development cooperation, encompassing all human rights of 19 May 2014, point 8, http://www.consilium.europa.eu/uedocs/cms_data/docs/ pressdata/en/foraff/142682.pdf. Accessed 14 March 2019. 149 Ibid. 150 Chalmers et al. (2014), p. 115; Hofmann et al. (2011), p. 513. 151 Previous ‘soft law’ in this context, include: The Communication of 8 October 2010 on Smart Regulation in the European Union; Communication of 19 October 2010 on a Strategy for the effec143

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2015 Better Regulation Agenda; it concretizes the ‘first level guidance’ into ‘second level guidance’. It particularly builds on Tool#28: Fundamental Rights & Human Rights, Tool #25 on Employment, working conditions, income distribution and inequality, Tool #22 on External trade and investment, Tool #30 on Developing countries and on the Operational Guidance on Fundamental Rights in Commission Impact Assessments.152 The 2015 Guidelines on HR in Trade SIAs complement the SIA handbook in that they are on one hand specialized on the inclusion of human rights and on the other cover both the trade SIA and the initial IA. In the following, the review is therefore limited to the SIA handbook and the guidelines on HRIA as they are based on the Action Plan and incorporating the Better Regulation Agenda and the respective tools from the toolbox. As to the legal quality of the SIA handbook and the HRIA guidelines, it is important to be reminded that they are not legislative acts and therefore not legally binding strictly speaking. However, the CJEU has decided that internal administrative rules such as guidelines can under certain circumstances create binding effects for the institutions that adopted them. Joanne Scott derives criteria from the case law to determine when post-legislative guidelines are amenable to judicial review, which might also be applicable to the HRIA guidelines.153 First of all, it is important to be reminded that the CJEU focusses on substance over form and by doing has declared acts judicially reviewable that were packaged as non-binding guidance documents, when they are intended to have legal effect.154 However, such legal effect for internal guidelines is only assumed in a limited number of cases, of which one might apply here.155 The CJEU has confirmed its power to control internal guidelines that serve as a means for structuring in a transparent manner the processes of decision making, while openly declaring their application.156 However, one may argue the HRIA guidelines are less about structuring the decision-making and more about providing a methodology for an impact assessment. The decision-making follows in the next step.157 In any case, subsequent action can be reviewed against the self-imposed guidelines,158 although, the underlying legal obligations certainly remain the ultimate benchmark. As Scott makes aware, a gap of legal review remains, especially in tive implementation of the Charter of Fundamental Rights by the European Union; Communication of 27 January 2012 on Trade, Growth and Development; Communication of 19 May 2015 on Better regulation for better results—An EU agenda. 152 Operational Guidance on Fundamental Rights in Commission Impact Assessments (SEC(2011) 567 final, 6.5.2011). 153 Scott (2011), pp. 340–342. Scott suggests that her analysis is relevant also beyond this specific field of guidelines, p. 329. 154 E.g. C-57/95, French Republic v Commission, ECLI:EU:C:1997:164, Judgment of 20 March 1997, para. 12. 155 It is unlikely that the Commission aimed to go further than the existing treaty obligations, which excludes the first case Scott alludes to, Scott (2011), p. 340. 156 Scott (2011), p. 341. 157 This aspect is discussed and criticized in the following in Sect. 6.3.3. 158 Hofmann et al. (2011), p. 807; with reference to T-35/99, Keller and Keller Meccanica v Commission, ECLI:EU:T:2002:19, Judgment of 30 January 2002, para. 77.

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the given case in which these guidelines are partly diluting binding obligations.159 They might not be legally challengeable as such although they significantly shape practice and the perceptions of the law.160 The practice of DG Trade can therefore be measured against these rules on HRIA. The SIA handbook and the guidelines would in any case only be legally binding upon the Commission as far as they are in compliance with primary law. DG Trade can thus be held accountable for diverging from the handbook and the guidelines as far as they are implementing primary law obligations. However, the first aspect to take note of is that there has not been any legislation enacted with regard to HRIAs. As stated above, the UN guidelines on HRIA clearly state that the procedure on HRIAs should be stipulated in legislation.161 As to the normative content, the SIA handbook states that the purpose of EU SIAs is to make sure that ‘[the]impact of the trade agreement on developing countries [is] in line with commitments stemming from the EU treaties’.162 The inclusion of human rights since 2012 is explicitly aimed at delivering what Article 21 TEU requires, that is ‘the EU’s determination to promote human rights and democracy through all its external actions’ as well as to comply with the EU Strategic Framework and Action Plan on Human Rights and Democracy.163 HRIA are therefore clearly understood as a tool to implement Article 21 TEU. As to the normative content of human rights applicable, the guidelines clearly outline the scope of the HRIA: [the] analysis of the human rights impacts of a trade-related initiative sets out to assess – against the normative framework of human rights obligations as set out in the Charter of Fundamental Rights of the European Union (CFR) and a number of international sources – how trade measures which might be included in a proposed trade-related policy initiative are likely to impact: either on the human rights of individuals in the countries or territories concerned; or on the ability of the EU and partner country/ies to fulfil or progressively realise their human rights obligations.164

In sum, the impact that investment agreements have on the host country population are measured against CFR and international human rights. This does not say anything about the accountability of the EU for potential human rights or CFR violations. However, it needs to be stressed that the CFR is understood as applicable in the context of the impact of investment agreements on third country citizens. The guidelines and the SIA handbook reiterate that the CFR is also meant to apply when the text only refers to human rights: Scott (2011), p. 344. Ibid., p. 345. 161 Schutter OD, Human Rights Council, Report of the Special Rapporteur on the right to food, Addendum - Guiding Principles on Human Rights Impact Assessments of Trade and Investment Agreements, A/HRC/19/59/Add.5, 19 December 2011, p. 3. 162 DG Trade, EU Commission (2016), p. 5. 163 Ibid., p. 4. 164 DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 2. 159 160

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To cover the external dimension of trade IAs and SIAs, the present guidelines will generally refer to the term ‘human rights’. Nevertheless, the term should be understood as also encompassing the fundamental rights enshrined in the CFR.165

And further: Respect for the Charter of Fundamental Rights in Commission acts and initiatives is a binding legal requirement in relation to both internal policies and external action. Checking compliance with the CFR is therefore an essential element of the analysis of human rights impacts in impact assessments of trade-related initiatives (emphasis in the original).166

The aim of the guidelines is explicitly to complement the tools on compliance with the CFR with assessment tools on international human rights compliance and not to substitute an assessment of the CFR impacts.167 According to Tool#28, international human rights provide for the minimum standard of protection. It is stated that ‘[t]he level of protection offered by the Charter cannot be less than that provided by international agreements to which the Union or all the Member States are a party’.168 Next to the CFR, the HRIA should assess the impact on the core UN human rights conventions,169 the fundamental ILO conventions on core labour standards, the European Convention on Human Rights (ECHR) and other regional human rights conventions, as well as customary international law.170 The social analysis which is a sub-part of the SIA, should additionally take into consideration the following: Internationally agreed principles on CSR and on responsible business conduct (RBC), such as the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, the UN’s Global Compact, and Ibid., p. 3; DG Trade, EU Commission (2016), p. 21: ‘The term “fundamental rights” is used in the EU to express the concept of “human rights” within a specific EU internal context. Traditionally, the term “fundamental rights” is used in a constitutional setting whereas the term “human rights” is used in international law. Indeed, the two terms refer to a similar substance as many parallels can be found when comparing the content of the Charter of Fundamental Rights of the EU (CFR) and the core UN conventions on human rights. Therefore, the SIA handbook refers to the term “human rights”. Nevertheless, this should be understood as also encompassing fundamental rights as enshrined in the CFR.’ 166 DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 5. 167 Ibid., p. 5. 168 ‘TOOL #28: FUNDAMENTAL RIGHTS&HUMAN RIGHTS - European Commission’, https://ec.europa.eu/info/better-regulation-toolbox_en. 169 DG Trade, EU Commission, Handbook for Sustainability Impact Assessment (n 19) 21; The core human rights conventions are specified in a footnote: International Convention on the Elimination of All Forms of Racial Discrimination (ICERD); International Covenant on Economic, Social, and Cultural Rights (ICESCR); International Covenant on Civil and Political Rights (ICCPR); Convention on the Elimination of All Forms of Discrimination against Women (CEDAW); Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (CAT); Convention on the Rights of the Child (CRC); International Convention on the Rights of Persons with Disabilities (ICRPD); and International Convention for the Protection of All Persons from Enforced Disappearance (ICPED). 170 See, Annexes I and II. 165

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its Guiding Principles on Business and Human Rights, as well as the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy.171 Hence, the scope of the HRIA is comprehensive comprising all the relevant international human rights instruments. However, it is questionable, why certain human rights and corresponding compliance and assessment tools are segregated into the social analysis. The handbook and the guidelines acknowledge that in order to capture discriminatory impacts particular attention should be paid to the effects on vulnerable and marginalized groups. Gender equality and non-discrimination should be treated as a cross-cutting issue.172 The analysis should identify early on which vulnerable social groups and geographical areas will be affected the most.173 Due attention should be paid to the pre-existing legal conditions for likely vulnerable groups such as women, low income, children, people with disabilities, ethnic minorities, indigenous peoples and unskilled workers.174 Attention should be paid to increased impact due to the interdependency and interrelation of human rights175 and to the specific contexts.176 The SIA handbook and the guidelines follow a human rights-based approach in that they clearly outline the normative content of the applicable rights by explicitly referring to specific rights and conventions and the respective interpretive authorities. They further stress the importance of consultations and the need to pay particular attention to discriminatory impact on vulnerable and marginalized groups.

6.3.2 Procedures The following section outlines the procedures as prescribed in the SIA handbook and the guidelines, which also to show the position that HRIAs have in the policy making cycle. There are four types of evaluating trade measures and their impact on human rights177: First, there is the initial impact assessment (IA) that is conducted by the DG Trade, EU Commission (2016), p. 20. DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 7. 173 DG Trade, EU Commission (2016), p. 24. 174 DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 9; DG Trade, EU Commission (2016), p. 22. 175 DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 6. 176 Ibid., p. 7. 177 See also European Commission, Trade, Growth and World Affairs. Trade Policy as a core Component of the EU’s 2020 strategy, COM(2010)612., 9 November 2010, p. 14. 171 172

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Commission itself. It is the basis for the Commission’s decision to request authorization by the Council and for the draft negotiation directive. This also includes a first assessment of the impact on human rights.178 Only selected stakeholders may participate in the assessment.179 The issues under assessment are likely to be mainly economic interests. Secondly, a comprehensive SIA is conducted during the negotiation phase. Contrary to other assessment tools that are part of the BEA, SIAs are specific for major trade agreements. They include the HRIA with a stronger emphasis on input from civil society. Third, an economic assessment of the negotiated outcome is conducted after the conclusion of the negotiations but before the signature of the agreement. The economic assessment is conducted by the Commission’s services for the EP and the Council and focuses on the expected impact of the negotiated outcome on trade barriers, i.e. whether the negotiated outcome will deliver the economic scenario that was assumed in the IA and the SIA. Fourth, according to SIA handbook ex-post evaluations are undertaken after the implementation to review whether the trade measure delivered the expected impacts and whether unanticipated impacts occur, including human rights impacts. Ex-post monitoring especially with regard to potential risks outlined in the SIA is usually recommended by the SIA.180 However, as of yet, there seems to be no explicit link to the Domestic Advisory Groups (DAGs) and Civil Society Meetings (CSMs) that are discussed in Chap. 7. As indicated above, SIAs combine an in-depth and integrated analysis of economic, social and human rights and environmental impacts with wide and ongoing public and stakeholder consultations in the EU as well as in the partner country. The SIAs are carried out by independent consultants with funding from the Commission and chosen by a competitive tenure procedure. Expertise and knowledge in human rights impact assessment is required.181 They are also responsible for reaching out with civil society representatives. The handbook and guidelines only provide the methodological basis and allow for flexibility and further developments.182 The SIA inter-service steering group (ISG) that may consist of Commission services and the European External Action Service (EEAS) is responsible for the coordination between the consultants and the Commission and the frequent exchange of information. SIAs are divided into three different reports: The inception, interim and final report. The inception report includes the consultation plan and a preliminary list of stakeholders. It should identify the areas and sectors of interest for the assessment, be discussed with civil society stakeholders and published on the DG Trade’s website. The interim report presents preliminary findings for further consultation with civil society stakeholders. In the final report, all stakeholder comments should be

DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 6. 179 Ibid., p. 11. 180 Ibid., p. 13. 181 DG Trade, EU Commission (2016), p. 10. 182 Ibid., p. 3. 178

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summarized in a transparent manner and flanking measures should be proposed. After the publication of a draft final report, another phase of public consultations is launched. The final report, which is also published, takes into account the last round of comments. The Commission responds with the publication of a position paper. The handbook prescribes a causal chain analysis based on one baseline scenario. It should consist of quantitative and qualitative methods building on illustrative case-studies and input from stakeholders. The systematic use of indicators is encouraged. With regards to human rights, the guidelines refer to the Human rights indicators: a guide to measurement and implementation (OCHCR, 2012).183 However, guidelines are meant to provide the framework, while the external consultancies develop their own methodological approach. The analysis is executed in two steps. First, the screening builds on the issues as defined by the negotiation directive and the findings of the impact assessment. It should outline the key human rights issues that are to be investigated further, i.e. the specific human rights that are likely to be most-affected, whether those are absolute rights and the particular trade measures that will have significant impact.184 It must be understood whether absolute rights are at stake and whether a deeper investigation into the meaning of the specific conventions might be necessary.185 The screening should take into consideration the specific human rights situation in the trading partner’s territory, the existing regulatory framework, the most sensitive human rights issues (also when unrelated to trade) and issues that were relevant for certain stakeholders. Further, information of EU human rights instruments (e.g. from EU’s human rights dialogues, EU Reports on Human Rights and Democracy in the World (country reports)) and UN bodies should be consulted. The scoping process is narrowing down the analysis to the single trade measure that has been identified as prompting impact on human rights. It should examine in detail whether and to what extent the operation of that trade component would have positive or negative impact on the identified human rights issues.186 From there follows an in depth-analysis based on state-of-the-art economic modelling techniques.187 All of these steps follow an integrated approach including an economic, social, environmental and human rights analysis. Unlike other impact assessment within the EU and outside, this analysis also takes into consideration the impact on non-EU countries and in particular on so-called least developed countries (LDCs). By reference to the Trade for all communication, the handbook makes clear that the SIA is also committed to include the effects on third countries that are not pary to the trade agreement.188 Ibid., pp. 15, 22. DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, pp. 6–8; ibid., pp. 6–7. 185 DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 7. 186 Ibid., pp. 8–9. 187 Ibid., pp. 9–11. 188 DG Trade, EU Commission (2016), p. 17; European Commission, Communication - Trade for all: Towards a more responsible trade and investment policy, October 2015, p. 18. 183 184

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Next to civil society input, information should be collected from existing human rights dialogue mechanisms as well as from reports by the Fundamental Rights Agency (FRA) and UN bodies. The specific human rights analysis should be based on the analysis of the IA and on ‘extensive consultation’ of stakeholders including from the partner countries.189 The high importance of a close dialogue with all relevant stakeholders, including the more vulnerable ones is stressed numerous times and highlighted as the core of the SIA.190 Stakeholders and civil society participation is also explicitly linked to Article 11 TEU and in Protocol no. 2 on the application of the principles of subsidiarity and proportionality.191 In addition, it is explicitly framed as a means to fulfil the human right to participate in the conduct of public affairs, as enshrined in the International Covenant on Civil and Political Rights (ICCPR).192 On the other hand, the main purpose is described as evidence and information gathering and increasing transparency and legitimacy of the negotiations of trade agreements.193 The importance of a balanced coverage of interests is stressed.194 Further, the consultation process should be timely, tailored, incorporated and comprehensive. Inclusive and balanced participation must be ensured, inside as well as outside the EU.195 The consultations as part of HRIAs are, however, the sole responsibility of the consultancies which are meant to set up a plan for consultation and to realize it. The SIA handbook defines stakeholders as ‘nongovernmental organisations, businesses, social partners (including trade unions), academia and national administrations.’196 The handbook further stresses that stakeholders in developing countries, in particular in LDCs should also be considered whenever relevant.197 Further, the handbook suggests consulting social partners, via the Sectoral Social Dialogue Committees (SSDC), but also expert groups such as the European consumer consultative group (ECCG) or the EU Health Policy Forum.198 The consultants should also identify target groups that run the risk of being excluded.199 Attention should be paid to potential difficulties of accessing consultations and to differences in resources. Stakeholders that run the risk of being excluded should be identified in cooperation with national human rights institutions and regional networks.200 In general, an active approach to consultations is encour DG Trade, EU Commission (2016), p. 21. Ibid., pp. 3, 25. 191 DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 10. 192 Ibid., p. 11. 193 DG Trade, EU Commission (2016), p. 25. 194 Ibid., p. 25. 195 DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 11. 196 DG Trade, EU Commission (2016), p. 10. 197 Ibid., p. 10. 198 Ibid., p. 26. 199 Ibid., p. 27. 200 Ibid., p. 27. 189 190

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aged, such as including continuous conduct of surveys, interviews, workshop publication and dissemination of draft reports, advertising civil society meetings, using newsletters and publishing the received input (unless stakeholders do not wish their contribution to be made public). Further, workshops may also be organized in the trade partner country. Travel expenses for participation in CSO meetings are reimbursed for registered civil society organizations when located inside the EU.201 In addition, comments can usually also be submitted per email on the basis of the draft reports. In terms of process, the EU HRIA Guidelines therefore comply with the UN Guidelines and the best practices as identified in the literature. However, one has to note that the EU guidelines prescribe the approaches at a general level and that much will depend on the concrete implementation in the given context. It should be clear that the responsibility for essential parts of the HRIA such as the organization and consultation of potentially vulnerable groups cannot be ‘outsourced’. The adoption of these guidelines alone does not lead to discharging EU human rights obligations. It remains therefore the responsibility of the EU institutions to monitor the practice with due diligence. From the requirements on ‘status’, i.e. the potential for the results to set a real limit and to influence policy-making, it is clear that conducting HRIAs when real policy changes are not anymore possible does not suffice for discharging obligations. Several observations lead to the conclusion that negative EU HRIAs rarely lead to considerable revisions of trade policy choices. One of them is simply the place HRIAs have in the policy making cycle. During the initial assessment that forms the EU position and ultimately the Council’s negotiation mandate only selective stakeholders are involved. Further, the IA, which is the most influential impact assessment, is confidential in order not to weaken the negotiation position. However, reports are being published and online-consultation is possible. Nevertheless, it remains questionable whether the later HRIA is capable of prompting major adaptions of the EU position when the major policy choices are set and have already been discussed. The other observations follow from the Commission perceptions of the legal role of HRIAs. That is on one hand, the perception of not being bound by the outcomes. On the other hand, it is the perception of human rights matters falling outside the scope of trade policy. These two prepositions will be analysed as part of the practice below.

6.3.3 L egal Consequences: Linking the Results to the Final Decision In order for HRIAs to function as an instrument that ensures human rights compliance, the outcomes should have legal impact. The guidelines indeed describe the outcome of the HRIAs as being capable of setting strict restraints on policy options 201

See, http://trade.ec.europa.eu/civilsoc/trav_exp.cfm. Accessed 14 March 2019.

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with regards to absolute rights. They make clear that no restrictions and limitations of absolute rights are acceptable.202 Further, the referred Tool #28 makes clear that absolute rights cannot be limited whereas for interferences with the remaining rights strict compliance with the proportionality principle of Article 52 CFR is required. As far as absolute rights are concerned, it seems that the guidelines conceive the outcome of a HRIA as having the potential to obligate the Commission to refrain from a certain trade measure. To that extent, there is no room for policy choices. Apart from the clear stance on absolute rights, the SIA handbook as well as the guidelines say little on the consequences of the outcome and the obligations that follow. The guidelines state that the HRIA should ‘warn decision makers of any identifiable risks of a significant negative impact on human rights; and also of the type of response which is warranted by those risks.’203 It remains unclear whether adopting such responses or at least considering them is mandatory. The guidelines only foresee the adoption of a response paper by the Commission. The Commission is therefore committed to justify its decision in light of the results of the HRIA. Samples of such response are analysed below. However, the guidelines give clear instructions on legal balancing in case of negative human rights effects. According to the guidelines, the HRIA should include an assessment on ‘whether possible negative impacts on human rights are justified in terms of necessity and proportionality (limitations on rights must be: provided by law, and respect the essence of the rights concerned; necessary to achieve an objective of genuine public interest or social need, or to protect the rights and freedoms of others; and proportionate to the aim pursued)’.204 This reflects a proportionality test. At first sight, one may conceive these instructions as a perfect implementation of the principle of proportionality as it stems from EU law and human rights law. On the other hand, one has to keep in mind that the entire HRIA to which these guidelines apply is outsourced to external contractors. It is questionable to what extent this legal balancing can be legitimately outsourced to private contractors. In order for this prescription to be in in line with the CFR, it should not be part of the outsourced assessment but apply to the Commission directly. The SIA handbook as well as the guidelines are silent on questions of how the results should inform decision-making and on the consequences for the lawmakers. Considering that the guidelines on HRIA and the SIA handbook are meant to give guidance only for the execution of the assessment, which is in the hand of private consultants, they are not necessary the primary place to address these issues. They however outline some limits, which should be clear signpost for the Commission. The EU HRIA Guidelines explain in detail ‘how’ and also explain ‘why’ (i.e. because of the EU human rights obligations) the HRIA should be conducted. The connection between these two is however not discussed. It remains ambiguous how to deal with the results and the legal consequences that should be drawn. DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 7. 203 Ibid., p. 12. 204 Ibid., p. 11. 202

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6.3.4 Conclusion on the Implementing Rules First of all, there has not been any legislation enacted with regard to HRIAs. The operationalizing norms are soft-law, i.e. the HRIA Guidelines and the SIA handbook. The UN Guidelines recommend stipulating the process in legislation instead of leaving the when and how entirely up to the executive. The EU HRIA Guidelines could be seen as middle ground. Self-imposed guidelines create obligations and especially the rather precisely drafted guidelines do not leave much room for ad-hoc decision making, which would be insufficient according to De Schutter. Further, the HRIA guidelines are primary regulating the technical assessment, which does not cover major policy choices that call for democratic legitimacy. However, the meaning and impact of the results, the way they feed into the final decision-makings as well as the processes for deliberating trade-offs and priorities that a society wishes to set for itself should be regulated by law. It is at this junction between results and outcome that legislation is missing. However, as discussed above, case law on the procedural principles is to some extent bridging this gap. Further, the normative content is clearly spelled out. The scope of HRIA is comprehensive comprising all the relevant international human rights instruments and the CFR. The HRIA Guidelines are explicitly referring to specific rights and conventions and the respective interpretive authorities. They prescribe a special focus on gender equality and non-discrimination. The focus should also be on those rights and groups that are likely to be most affected in light of the specific context and conditions in the trading partner’s country, including the prevalent human right situation. Vulnerable social groups and geographical areas that are most likely to be affected should be identified early on. Obligations are clearly spelled out. These are the EU obligations stemming from the CFR and all relevant international human rights instruments which cover the human rights of individuals in third countries, but also the EU’s role in ensuring that the trade partners can fulfil and progressively realise their human rights obligations. Further, the normative assessment should be based on human rights doctrine and jurisprudence, authoritative and relevant tools, reports and guidelines, like the UN guidelines. Human rights are therefore treated as a legal regime encompassing rights, interests and obligations. Rights-holders and potentially affected persons will be identifiable. Human rights are therefore not treated as a political matter and the definitions are clear and are not up for political negotiations. However, it should be noted that CSR mechanisms are excluded from the human rights analysis but instead part of the social analysis. It appears questionable to detach CSR from human rights, especially because the Council has linked the need for a HRIA to the human rights threats stemming from corporate investors.205 Further, there is disagreement in the literature whether an incorporated HRIA

Council conclusions on a rights-based approach to development cooperation, encompassing all human rights of 19 May 2014, point 8, http://www.consilium.europa.eu/uedocs/cms_data/docs/ pressdata/en/foraff/142682.pdf. Accessed 14 March 2019.

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is as effective as a stand-alone HRIA.206 The EU follows the integrated approach. This has been supported by the Ombudsman who states that both can be equally effective207 Further, it should be kept in mind that the narrowing down (during the screening and coping processes) to the specific context in the specific case is essential. There are no control mechanisms in place, and it is unclear how the responsible EU institutions are monitoring these processes. Annexing human rights conventions and mentioning their general relevance does not satisfy the requirements for an effective HRIA. Nevertheless, the procedural steps and the standards required for the methodology are adequate and reflect best practices as identified in the literature despite some aspects being left unclear or remaining at the level of recommendations such as the use of human rights indicators. The need to be as transparent as possible is also stressed several times in the HRIA guidelines. Documents concerning the HRIA and related stakeholder meetings should be published and disseminated. Further, the division of the SIAs into three parts that are published respectively in order to discuss the interim findings with civil society seems to be a useful practice to guarantee transparency. As to the inclusion of stakeholder and rights-holder, the importance of a close dialogue including all relevant stakeholders, and especially the more vulnerable ones is the backbone of the HRIA process. The HRIA guidelines acknowledge that it is necessary and that it should be a prime focus to reach out beyond established interest-groups. The strategy on how to ensure inclusiveness is also prescribed relatively detailed. Social partners and stakeholders in developing countries, in particular in LDCs, should be included. Attention should be paid to potential difficulties to access consultations and to differences in resources. Stakeholders that run the risk of being excluded should be identified in cooperation with national human rights institutions and regional networks. It is clear from the HRIA guidelines that an active approach will be necessary in many cases and several forms of how to achieve this are proposed. Next to the comprehensive scope of the applicable legal regimes, also the standards required for the consultations processes are ambitious but remain general. What should be noted is that it is the responsibility of the consultancies to set up a plan for consultation and to realize it. On one hand this makes sense, since the outsourcing of the entire HRIA is a way of guaranteeing the required independence. Control mechanisms should, however, be in place, to not cut the link between the Commission’s responsibility of guaranteeing equal and inclusive consultation and the actual implementation. Other principles that the HRIA are meant to comply with like the timeliness might also cause tensions with the requirement of broad and

Harrison and Stephenson (2010), pp. 76–79. EU Ombudsman, Decision in case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, para. 23.

206 207

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outreaching consultations. Some conditions are imposed on the consultancies, such as the expertise in human rights well as independence. With regards to the outsourcing, it is further problematic that some parts of the assessment are arguably the genuine responsibility of the EU institutions, such as the final weighing of the different interests at stake on the basis of the proportionality principle. The HRIA guidelines prescribe the application of the proportionality principle. It is not clear whether this means that besides delivering the results, the private contractor should also make a decision based on a proportionality assessment of the expected human rights infringements and hence only deliver the results. In any case, the proportionality assessment by the private contractors cannot liberate the EU policy makers from conducting an own transparent balancing of interests and trade-offs. The HRIA should therefore clearly outline the positive and negative impacts. The final decision has to be made by the EU institutions. Most critically is the status that is given to HRIA in the decision-making cycle that is after the major policy decisions have been made. The first assessment, the IA that leads to forming the proposed measures is based on a selective stakeholder consultation. The subsequent SIA is usually only based on one or two baseline scenarios, so that many options are excluded from the assessment from the outset. The status alone is however not problematic if real impact by HRIA results on the first proposal is still guaranteed. The practice, as will be discuss below, suggests different picture. Closely linked to this point is the regulation of the legal consequences. Except for the proportionality balancing, the HRIA guidelines are silent on these issues. However, they outline some clear red lines for the final decision. Further, by way of a response paper that is foreseen in the guidelines, the Commission is compelled to justify its decision in light of the results.

6.4 The Practice: Examples of Shortcomings and Potential This section examines two examples to review how the SIA handbook and the guidelines are applied in practice and the relevance that is given to HRIAs and their outcomes by the EU policy makers. This review is especially focused on how the aspects that have been identified as being essential for the duty to assess and the empowerment of rights-holders that are emphasized in the rules translate into practice. These are the comprehensive and concretely outlined normative content of applicable rights and the inclusive participation of civil society with focus on including marginalized and vulnerable groups. For a meaningful participation the processes have to be independent and transparent. As to the shortcomings that have been identified in the rules, this section examines the consequences of those for the practice (such as the ambiguity in terms of legal consequences and the lack of real influence). For evaluating the practice according to the criteria outlined above, a closer look at the dispute around the FTA Vietnam and the submissions by the Commission to the Ombudsman in that case is warranted since it illustrates the

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Comission’s conception of the function of HRIA and its relation to obligations stemming from Art. 21 TEU. Further, the SIA on the investment protection agreement between the EU and Myanmar (IPA Myanmar) is a good example, because the SIA conducted in this case was the first after the adoption of the EU Guidelines on HRIA. In addition, the CSOs which participated in the stakeholder meetings and those that remained outside published statements about their experiences and detailed minutes of the meeting are available.208 This analysis does not aim to evaluate the success or failures of the current HRIA practice as a whole but compares these concrete case-studies with the legal requirements in order to demonstrate that concrete EU action in the negotiation of an investment agreement can be measured against the legal requirements.

6.4.1 Substantive Scope As to the substantive scope, the study on the IPA Myanmar covers all relevant human rights conventions, the CFR and corporate social responsibility standards as required by the EU guidelines. Further, potential human rights violations are concretely linked to investment protection provisions. Many of the tensions and threats discussed in Chaps. 4 and 5 are touched upon, such as the fact that Myanmar is an economy in transition and that due to expected instability of the legal framework, Myanmar will be put under increased litigation risk.209 Such regulatory chill is most likely to affect people living in extreme poverty and indigenous peoples.210 Problematic, however, is the segregation between social analysis and human rights analysis, while business related human rights issues are usually included in the former. The practical implications of this division that is prescribed in the guidelines become visible in this case. This division substantiates an artificial fragmentation between social rights and other human rights. This division further perpetuates a limited understanding of the influence of business actors on human rights abuses more general when linking business behaviour only to social rights. The consequences of such fragmentation are ultimately reflected in a limited conception of the CCP competence and the legal room for manoeuvre. As indicated above, the main After the new handbook on SIA was adopted in 2016, other minutes were published on the SIA for TTIP, on SIA for the IA China and on the SIA for FTA Japan. However, as stated above, the materials for the SIA Myanmar are more detailed and the participants published separate statements about their experiences which makes the SIA Myanmar an informative example. The second meeting was accompanied by a public letter of Myanmar Alliance for Transparency and Accountability and other civil society organizations, http://www.s2bnetwork.org/wp-content/ uploads/2016/04/EU-Myanmar-IPA-Eng-5-April-16-.pdf. Accessed 14 March 2019. 209 DG Trade, EU Commission (2016) Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar, Final Report, p. 153. 210 Ibid., p. 154. 208

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problems of the current practice that may render the expansion of the substantive scope redundant stem from a limited understanding of the legal consequences of this assessment as well as of the competence of the trade and investment policy maker. The latter two aspects are discussed below.

6.4.2 Inclusive Participation and Balanced Representation During the SIA on Myanmar, inclusive participation and a balanced representation of interests were meant to be realized through several open consultations, i.e. two civil society dialogues in Brussels and a local workshop in Myanmar. In the first meeting on November 5th, 2015, the draft inception report was discussed to give civil society an opportunity to comment on the methodology and to bring the attention to issues that ought to be included. At the second civil society dialogue on April 5th, 2016, the outcomes of the SIA, i.e. the draft reports, were presented and discussed. Further, the SIA Project Team and DG Trade conducted a local workshop in Myanmar, which was held on December 17th, 2015 in Yangon with a high number (90) of participants including 9 representatives of human rights organizations, that were covering gender equality, informal workers, and ethnic minorities next to 11 representative of the world’s biggest multinational companies, law firms and ca. 29 other business organization.211 At the first Civil Society Dialogue, two human rights organizations, the International Trade Union Confederation (ITUC) and one animal rights organization were present as well as 20 organizations presenting business interests.212 Also in the second civil society dialogue on the draft final report held in Brussels, 3 human rights organization (The Transnational Institute; ACT Alliance Advocacy to the European Union and International Federation for Human Rights (FIDH)) and the ITUC were present as well as 3 business organizations and the European Patent Office.213 Further, the consultancy firm conducted constant stakeholder consultation through a website and through targeted interviews during the SIA to gather the required input which amounted in case of the SIA Myanmar to 12 filled in questionnaires and 49 face-to-fact interviews. Those consultations informed the outcomes of the SIA directly since they are conceived as ‘a very important data-gathering tool’.214 For instance, the result on the positive human rights impacts is mainly based on stakeholder contributions and submitted questionnaires as qualitative data was Ibid, Annex II. http://trade.ec.europa.eu/civilsoc/meetdetails.cfm?meet=11457. Accessed 14 March 2019. 213 http://trade.ec.europa.eu/civilsoc/meetdetails.cfm?pastyear=2016&meet=11467. Accessed 14 March 2019. 214 DG Trade, EU Commission (2016) Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar, Final Report, p. 39. 211 212

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largely unavailable. The selection of stakeholders thus has substantive impact on the results of the SIA. The consultancy firm commits to apply the appropriate toolbox from the Better Regulation Package as well as the SIA handbook. The process was explicitly aimed at ‘giving a voice to the affected constituencies’ and to ‘ensure a balance approach’.215 They aimed for including stakeholders from diverse backgrounds and a wide geographical reach covering academia, government, social partners, civil society, and business (both local and European businesses) and representatives of ethnic minorities.216 In light of these aims, it is however, questionable that in fact only two CSOs were part of the stakeholder selected for interviews (the Myanmar Environmental Institute and the Sandhi Governance Institute were part of the consultations.).217 One problem that becomes visible is the difficulty of measuring whether balance is achieved and whether the marginalized groups were actively approached. The objective numbers of the targeted interviews do not point towards ‘extensive consultations’ with a special focus on usually marginalized rights-holders. Another problem is the preparation of these meetings. The lack of detailed information about the envisaged IPA was perceived as an obstacle for giving substantive opinions and assessments.218 The ITUC questioned the usefulness of the one-day consultation at the first meeting without further capacity-building.219 Further empirical research would be necessary to assess and compare the number of representatives present at these meetings. However, from this incidental evidence the balanced representation seems to vary substantively and is not always achieved. From a legal point of view, it should be made clear, that although, in terms of ensuring independence, the outsourcing of consultations has to be welcomed, yet at the same EU institutions cannot liberate themselves from the responsibility of ensuring inclusive participation. In the case of the FTA Vietnam, the EU did not conduct a HRIA which became subject of the complaints before the Ombudsman. However, the Commission pointed to several measures that were undertaken to ensure human rights compliance and that would substitute the conduct of a HRIA.220 Among other measures, civil society consultations were conducted to discuss the EU-Vietnam relations, namely an open civil society meeting on 12 May 2015 conducted by DG Trade, the EP’s Committe on International Trade (INTA), and the Sub-committee on Human Rights (DROI), and another meeting on 6th August 2015 with the purpose of briefing CSOs on the status of the FTA Vietnam.221 Such meetings do not meet the requirements of inclu Ibid., p. 33. Ibid., p. 34. 217 Ibid., p. 35. 218 Ibid., pp. 37, 39. 219 Ibid., p. 169. 220 EU Ombudsman, Decision in case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, para. 16. 221 http://trade.ec.europa.eu/doclib/press/index.cfm?id=1306. Accessed 14 March 2019. 215 216

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sive consultation and meaningful participation that should be part of an evidencebased HRIA. Instead, they should not be organized in a random manner, but be structured and transparent with the possibility for rights-holders to put forward their human rights concerns in order to feed those in to the policy making process.

6.4.3 Transparency and Independence For assessing the transparency, it is important to note that the draft final report, the final report and the minutes of the CSM are published. However, more detailed information on the agreement text that is negotiated is not available, which makes it difficult for civil society participants to comment on expected impacts. Further, the influence that civil society input actually has remains vague. Comments are replied to in the meeting but how they are dealt with in the SIA or when forming policy decisions is unclear. The lack of transparency can be illustrated with the following example. In the case of the SIA on Myanmar, there were extensive inconsistencies between the draft final report on which civil society could comment and the final report. According to the observation by one participating NGO, FIDH, this was specifically the case for the recommendations related to human rights. In the previous draft report, the recommendations on human rights safeguards and business-related human rights threats were more concrete and framed as essential for ensuring human rights compliance. Despite several comments by civil society on precisely these recommendations, the latter were considerably watered down or removed all together in the final report.222 In an open reply by Commissioner Malmström to the NGOs pointing that out, the changes are explained by a Commission’s request to adjust the SIA according to the new EU approach to investment protection and in order to incorporate other stakeholders’ input.223 Those changes were never openly justified or substantiated by reference to different provisions in EU investment agreement or to statements from other stakeholders. This practice questions the compliance with transparency requirements. It further questions the independence of SIAs. On a more abstract level, one should be reminded that the outsourcing of the HRIA leads to conflicts with responsibility allocation. Balancing of different objectives and human rights is the genuine responsibility of the legislator. Therefore, policy choices must not by determined by the SIA or disguised in the process of the SIA. They should be based in a transparent manner on the results of the SIA and clearly justify trade-offs. In the literature on HRIA, it has therefore been emphasized FIDH, ALTSEAN Burma (2016) Open letter to Ms Malmström: EU-Myanmar/Burma Investment Protection Agreement (IPA) and impact assessment fail to protect human rights, p. 2. https://www.bilaterals.org/?eu-myanmar-burma-investment&lang=en. Accessed 14 March 2019. 223 Reply by Ms. Malmström to FIDH and ALTSEAN-Burma, 2017, p. 1. http://ec.europa.eu/carol/ index.cfm?fuseaction=download&documentId=090166e5b06d7b7c&title=reply.pdf. Accessed 14 March 2019. 222

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that clear results are crucial for the decision maker to understand its options and consequences. However, the final reports of the SIA on the Myanmar IPA have been criticized for remaining vague and for failing to give clear guidance of available choices for policy makers.224

6.4.4 C onceptual Limitations as to the Legal Consequences, the Possibility to Influence and the Substantive Scope The main shortcoming in terms of fulfilling both the duty to assess and the duty to promote stem from conceptual limitations. The dispute around the omission of conducting a specific HRIA on the FTA Vietnam gives insights into the origins of the Commission’s conception towards HRIA. The Commission argued that the mix of traditional human rights tools (such as the broad human rights clause, dialogues, démarches, EU-funded development programs and the SD chapter) and an ad hoc civil society meeting allowed for forgoing the conduct of a HRIA.225 However, for the most part, as the Ombudsman stated, these tools are not suitable for capturing the negative effects stemming directly from the investment regime. They have been largely criticized for lacking transparency and not including affected people.226 They might be useful as an addition. However, in general, procedural requirements for law making imposed by EU law and international human rights law cannot be substituted by formulations in the legislative act or other legally unconnected policy tools. Whereas the EU-Vietnam Framework Agreement on Comprehensive Partnership and Cooperation (PCA) with Vietnam is legally linked to the FTA, the dialogues and other ‘non-trade policy tools’ are not legal instruments and any linkage is left to the discretion of the parties. The tools are therefore not suitable for complying with the duty to assess in the context of investment policy making. Whereas HRIAs might not be the only available tool for complying with the duty of care and proportionality balancing— although being internationally considered as the most appropriate—the EU is required to demonstrate in a transparent manner how the procedural duties of law- making have been complied with. Further, the Ombudsman made clear that a social analysis alone is also not capable of substituting a HRIA.227 However, the argument Position paper by FIDH and ALTSEAN Burma (EU-Myanmar/Burma Investment Protection Agreement (IPA) Comments on Sustainability Impact Assessment’s Draft final Report from April 2016. https://www.fidh.org/IMG/pdf/313053268-eu-myanmar-burma-investment-protectionagreement-ipa-comments-on-sustainability-impact-assessment-s-draft-final-report.pdf. Accessed 14 March 2019. 225 EU Ombudsman, Decision in case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, para. 20. 226 Ibid., para. 20.3. 227 Ibid., p. 11. 224

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put forward by the Commission that the launching of the negotiations precedes the adoption of the Lisbon Treaty and therefore Article 21 TEU indicates that the Commission acknowledges the shift in terms of legal obligations brought about by Article 21 TEU.228 However, also the process of the HRIA on the IPA Myanmar including civil society consultations and the response paper by the Commission suggest that the relevant EU policy makers entertain an understanding of EU HRIAs that would not meet the requirements of the EU human rights framework. The report on the civil society meetings reveals that the Commission does not feel bound to the handbook and the guidelines. The Commission diverged from the prescriptions in the handbook in many aspects but without further justification. For example, no interim report was conducted. Upon request for clarification, DG Trade replies that it was deemed unnecessary.229 Further, the understanding of competence does not correspond with the function of a proper HRIA. When issues pertaining to the human rights situation within Myanmar were raised or questions concerning how the EU will ensure compliance with international human rights of European investors (especially land grabbing and use of pesticide that are against EU standards) were put forward, the SIA Project Team and the Commission replied by stating that potential responses to these issues fall outside the scope of the investment protection agreement. They referred instead to international mechanisms and agreements or asserted that these issues are the sole responsibility of Myanmar.230 However, as the HRIA shows, Myanmar has an alarming record of human rights protection and is still due to sign some major human rights conventions like the ICCPR, the Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (CAT) or the Convention on the Elimination of all Forms of Discrimination Against Women (CEDAW). Myanmar also dismisses the applicability of the UN Declaration on the Rights of Indigenous Peoples (UNDRIP) to its territory.231 Discrimination against ethnic and religious minorities is widespread, systemic and politically accepted, which is discussed in more detail in the next chapter.232 Sufficient legal protection against human rights violations is not to be expected at national level. The Myanmar National Human Rights Commission is not considered meeting the definitions under the Paris Principles to be recognised as a national human rights institution. Many of these human rights concerns are linked to foreign business activities. Violations could therefore increase when FDI is promoted. For instance, Ibid., para. 13. DG Trade, EU Commission, Minutes of the Meeting on the Trade Sustainability Impact Assessment of the EU-Myanmar Investment Protection Agreement, 4 May 2016, p. 3. 230 Ibid., p. 3. 231 Coalition of Indigenous Peoples in Myanmar/Burma, Joint submission to the UN Universal Periodic Review, March 2015, para. 4. 232 DG Trade, EU Commission (2016) Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar, Final Report, p. 134; with reference to Sot (2012). 228 229

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NGOs have claimed—as also acknowledged in the EU SIA—that land grabbing to the detriment of indigenous people in order to allocate land to foreign and national investors has been practically legalized.233 Further, increased numbers of forced labour complaints have been connected with the large-scale land confiscation and allocation of such land to foreign investors.234 The SIA on Myanmar therefore concludes that protecting the domestic policy space is circular, if the exercise of that domestic policy space is not in compliance with international standards.235 However, DG Trade does not deem it necessary to mention human rights in the IPA at all. The inclusion of a right to regulate is found to be sufficient.236 This stands in contrast to the conclusion drawn in the SIA, which state that ‘right to regulate’ provisions should be strong enough to ‘exclude legitimate policy actions, especially those taken for the protection of human rights’.237 The Commission also underlines that an investment agreement is ‘not the appropriate context to impose binding obligations on investors’, it ‘only [concerns] the enforcement of existing rules affecting investment.’238 However, exporting CSR is one of the expressed aims of the IPA. It is the backbone of the proclaimed positive impacts as identified by the HRIA final report-239 The SIA further states: […] CSR standards and initiatives by EU companies have the potential to inspire and lead positive change in Myanmar. This said, and given Myanmar’s high level of corruption […] and fragile human rights framework, the argument has been made that self-regulating company codes of conduct would not be adequate in Myanmar.240

That means that the IPA is about more than just enforcing investment rules. However, no efforts are undertaken to ensure these positive effects of CSR that are meant to outweigh the negative effects materialize. Binding obligations are not the only means to enforce CSR. However, the Commission seems to exclude this issue

Coalition of Indigenous Peoples in Myanmar/Burma, Joint submission to the UN Universal Periodic Review, March 2015, paras 7–9; DG Trade, EU Commission (2016) Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar, Final Report, p. 100. 234 DG Trade, EU Commission (2016) Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar, Final Report, pp. 100, 101. 235 Ibid., p. 103. 236 DG Trade, EU Commission, Minutes of the Meeting on the Trade Sustainability Impact Assessment of the EU-Myanmar Investment Protection Agreement, 4 May 2016, p. 4. 237 DG Trade, EU Commission (2016) Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar, Final Report, p. 162. 238 DG Trade, EU Commission, Minutes of the Meeting on the Trade Sustainability Impact Assessment of the EU-Myanmar Investment Protection Agreement, 4 May 2016, p. 4. 239 DG Trade, EU Commission (2016) Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar, Final Report, p. 158. 240 Ibid., p. 158. 233

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from the outset which undermines the assumptions the SIA is based on and which are essential for the positive results. The first recommendation of the HRIA is therefore that ‘Chapters should be included in the IPA that encourage compliance with international labour, environmental and human rights standards by EU and Myanmar investors.’241 Labour standards and social protection in Myanmar are inadequate to offer sufficient protection for the labour force. Although EU companies are likely to apply codes of conduct and thereby increase the net standards of labour protection, additional measures should be inserted in the IPA to ensure that EU companies are not cooperating with local companies that rely on poor labour standards.242 Some specific sectors are especially at risk of not being in compliance with international codes of conduct, such as the textile, agriculture and fisheries, mining and construction sectors. In the mining, agriculture and fisheries sectors, the majority of respondents were concerned about the impact on human rights by the IPA. However, this issue is understood as falling outside the scope of competence. Certainly, some possible responses may fall outside the scope of the investment policy maker. However, as seen from the recent BIT between Morocco and Nigeria, the inclusion of investor obligation can be made part of international investment regulation. It is true that the EU investment policy has to maintain the competence delineation, nevertheless excluding any consideration would mean that the EU investment policy maker is legally not in the position to design a policy that is capable of remedying or mitigating its negative effects on human rights and therefore not capable of being in compliance with the EU human rights obligations. Precisely the latter conclusion was rejected by the ECJ in Opinion 2/15.243 The expansion of the impact assessment to human rights and responsible business conduct becomes meaningless if the results have no influence on the investment policy making because the identified issues are understood as falling outside the scope. The case of Myanmar, the negative results of the SIA including mass scale human rights violations with a close link to FDI did not lead to any adaption of the investment treaty text. The same is true for the statement made by ITUC, that the SD chapter will not be sufficient to mitigate the expected adverse impacts on human rights but that investor due diligence will be necessary.244 However, the usual template of the new generation investment treaty with only slight variations was adopted. This practice further shows that the real influence on policy decisions is limited. This is due to several factors. First, the inadequate conception of what an investment Ibid., p. 158. Ibid., pp. 8–9. 243 The ECJ stated that it would ‘not be coherent to hold that the provisions liberalising trade between the European Union and a third State fall within the common commercial policy and that those which are designed to ensure that the requirements of sustainable development are met when that liberalisation of trade takes place fall outside it.’ See, Opinion 2/15, Singapore, ECLI:EU:C:2017:376, 16 May 2017, para. 163. 244 Minutes of the Meeting on the Trade Sustainability Impact Assessment of the EU-Myanmar Investment Protection Agreement, 5th November 2015, http://trade.ec.europa.eu/doclib/docs/2015/ november/tradoc_153981.pdf. Accessed 14 March 2019. 241 242

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agreement could and should do. Second, the fact that the SIA itself is limited to policy decisions already made which usually resemble the template EU approach to investment regulation. Alternatives are rarely taken into consideration and the outcomes do not show any specific adjustments that would accommodate specific circumstances, although alternatives are possible, recommended by NGOs245 or international organizations or can be found in other BITs between the EU trade partners and third states.246 Third, there is no specific legislation, no detailed soft- law and no practice of justification when different options and trade-offs have been identified.

6.5 Conclusion On an abstract level, the EU implementing rules expose an understanding of HRIAs that is capable of discharging the duty to assess and of supporting the duty to promote in the context of investment regulation. The substantive scope is comprehensive and covers all relevant international human rights conventions and the CFR. The elements that the international discourse identifies as being essential for a HRIA to qualify as an instrument for human rights protection are those on which the EU Guidelines and the SIA handbook put much emphasis—which is meaningful participation of the rights-holders and especially those that have traditionally been neglected and marginalized in the given context. The guidelines do not need to include the legal consequences of the results, as in their current form they are meant to be applied mainly to consultancies which are not in the position to make the policy decisions. However, the lack of any guidance or clarification on the linkage between conducting a HRIA and the EU human rights obligations could be an explanation for the ambiguous practice that blurs the policy decision making process for the public observer and makes it harder to hold the responsible actors accountable. The human rights risks identified in the SIAs did not lead to any visible adaption of the investment rules proposed. They were understood as falling outside the scope of the investment maker’s competence. However, the incompatibilities that remained due to this perceived lack of competence did also not lead to rejecting the provision in question or to making it conditional upon the necessary flanking measures. This perception and the corresponding policy choices FIDH and the International Commission of Jurists (ICJ) pointed out in a civil society dialogue on the SIA Myanmar that many options for provisions for investment protection are possible; see, DG Trade, EU Commission (2016) Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar, Final Report, p. 168. 246 E.g., in the Japan-Myanmar BIT, measures adopted by the Self-Administered Divisions and Self-Administered Zones in Myanmar are exempted from the coverage of the IPA. The exemption of Myanmar’s sub-central levels of government is based on the idea that these self-administered zones should not be bound to an agreement that they have not sign up to. Otherwise, this might be a reason for conflict in these fragile areas. 245

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are not in compliance with Article 21 TEU, the general human rights framework of the EU and other constitutional principles. The phase between receiving the results of a SIA to the actual decision making remains ambiguous. The aims of feeding evidence-based human rights concerns that reflect the interests of disregarded rights-holders into the investment policy-making cycle in an influential manner does not seem to be achieved. It is as this stage, that the current HRIA practice fails to present a means for complying with the duty to protect human rights as well as with the duty to promote in a systematic manner. This analysis showed that an important remedy for overcoming the inequality of rights protection perpetuated by the current investment regimes is legally possible and required by EU law. The failures at the implementation stage renders HRIAs ineffective. Reforms in the process and a major shift of perception are needed to turn this instrument into a reliable mechanism for ensuring that abstract human rights principles systematically inform concrete investment policy making.

References Alston P, Goodman R (2013) International human rights: text and materials. Oxford University Press, Oxford Chalmers D, Davies G, Monti G (2014) European Union law: text and materials, 3rd edn. Cambridge University Press, Cambridge Craig P (2012) EU Administrative Law. Oxford University Press, Oxford Craig P (2014) Article 41 - Right to good administration. In: Peers S, Hervey TK, Kenner J, Ward A (eds) The EU Charter of Fundamental Rights, a commentary. Hart, Oxford Craig P, de Búrca G (2015) EU law: text, cases, and materials, 6th edn. Oxford University Press, Oxford Curtin D, Mendes J (2014) Article 42 - Right of access to documents. In: Peers S, Hervey TK, Kenner J, Ward A (eds) The EU Charter of Fundamental Rights, a commentary. Hart, Oxford, pp 1099–1119 DG Trade, EU Commission (2016) Handbook for sustainability impact assessment . Publications Office of the European Union, Luxembourg. http://trade.ec.europa.eu/doclib/docs/2016/april/ tradoc_154464.PDF Ekins P, Voituriez T (2009) Overview and general introduction. In: Ekins P, Voituriez T (eds) Trade, globalization and sustainability impact assessment. Earthscan, London, pp 1–16 Fontanelli F (2014) Kadieu: connecting the dots - from Resolution 1267 to Judgment C-584/10 P. In: Fontanelli F, Martinico G, Avbelj M (eds) Kadi on trial: a multifacet analysis of the Kadi Trial. Routledge, New York, pp 7–21 Fritzsche A (2010) Discretion, scope of judicial review and institutional balance in European Law. Common Mark Law Rev 47:361–403 George C, Kirkpatrick C (2009) Have sustainability impact assessments of trade agreements delivered on development issues? A reflexive analysis of the emergence and main contributions of trade SIAs. In: Ekins P, Voituriez T (eds) Trade, globalization and sustainability impact assessment. Earthscan, London, pp 64–84 Harrison J (2011) Human rights measurement: reflections on the current practice and future potential of human rights impact assessment. J Hum Rights Pract 3:162–187. https://doi.org/10.1093/ jhuman/hur011 Harrison J, Stephenson M-A (2010) Human rights impact assessment: review of practice and guidance for future assessments. Report for the Scottish Human Rights Committee. Scottish

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Human Rights Commission. http://fian-ch.org/content/uploads/HRIA-Review-of-Practiceand-Guidance-for-Future-Assessments.pdf Hofmann H, Rowe GC, Türk A (2011) Administrative law and policy of the European Union. Oxford University Press, Oxford Legg A (2012) Proportionality: determining rights. In: The margin of appreciation in international human rights law: deference and proportionality. Oxford University Press, Oxford, pp 177–199 Mendes J (2011a) Participation in EU rule-making: a rights-based approach. Oxford University Press, Oxford Mendes J (2011b) Participation and the role of law after Lisbon: a legal view on Article 11 TEU. Common Mark Law Rev 48:1849–1878 Mendes J (2016) Discretion, care and public interests in the EU administration: probing the limits of law. Common Mark Law Rev 53:419–451 Scott J (2011) In legal limbo: post-legislative guidance as a challenge for European administrative law. Common Mark Law Rev 48:329–355 Sot M (2012) Myanmar’s ethnic problems, IRIN News. http://www.irinnews.org/report/95195/ briefing-myanmar%E2%80%99s-ethnic-problems. Accessed 15 Mar 2019 Vianello I (2016) EU external action and the administrative rule of law: a long-overdue encounter. European University Institute, Florence Walker S (2009) The future of human rights impact assessments of trade agreements. Intersentia, Cambridge

Chapter 7

Consultation and Participation Through Domestic Advisory Groups and Civil Society Meetings

Abstract Since the EU-Korea FTA, the EU includes an elaborated mechanism for civil society participation as a monitoring and advisory body for the trade and sustainable development chapters. This chapter proposes that these mechanisms bear the potential to enable human rights-holders to participate in the implementation, evaluation and contestation of the international investment regime while circumventing existing power imbalances at domestic level as well as at the level of investment arbitration. Therefore, these mechanisms could be a means to counter the inequality of rights protection within the international investment regime by building sustainable institutions that enable those previously disregarded to inject their interests into international investment regulation. However, for the EU to seize the full potential of the EU human rights framework, substantial reforms and a shift of perception are necessary as this chapter demonstrates. In order to show the potential and the shortcomings, the first section (Sect. 7.2) outlines the relevant requirements of the EU external human rights framework. Any consultation and participation mechanism in an investment agreement will have to meet such legal requirements in order to discharge the duty to respect and in order to realize the duty to promote that flow from EU constitutional law as demonstrated in Chap. 2. Other applicable obligations stemming from EU law as well as international human rights law provide the substantive content for the abstract human rights commitment of Art. 21 TEU. Second, the institutional design, the practice as well as the discernible concept behind the current civil society involvement mechanisms in EU trade agreements are evaluated against these legal requirements (Sect. 7.3). Subsequently, the necessary reforms are being proposed (Sect. 7.4).

7.1 Introduction Since the EU-Korea free trade agreement (FTA), an elaborated mechanism for civil society participation is consistently included as a monitoring and advisory body for trade and sustainable development (SD) chapters of the new generation of trade and investment agreements. Previously, only the EU-CARIFORUM Economic © Springer Nature Switzerland AG 2019 V. Kube, EU Human Rights, International Investment Law and Participation, Interdisciplinary Studies in Human Rights 4, https://doi.org/10.1007/978-3-030-20607-9_7

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Partnership Agreement (CARIFORUM EPA) included an official access point for civil society with the establishment of the Consultative Committee as an assisting body to the intergovernmental Council.1 The CARIFORUM Consultative Committee has so far only met three times since its establishment in 2008.2 Participants have described the experience as rather frustrating.3 The new generation of civil society mechanisms is more sophisticated, while varying slightly from treaty to treaty, which is described in more detail below.4 In general, the parties are required to establish a so-called Domestic Advisory Group (DAG) or use existing domestic mechanisms. The EU creates a new DAG for every agreement under the auspice of the European Economic and Social Committee (EESC). The EESC, which is a consultative body of the EU, is focused on strengthening the civil society participation in EU decision-making processes. The members of the DAGs are supposed to be independent civil society organisations that represent economic, social and environmental stakeholders in a balanced manner. The main task of the DAGs is to submit recommendations to the intergovernmental bodies that are also established by SD chapters. Further, the DAGs regularly meet jointly as well as with civil society at large (in the following: CSMs) on a national and transnational level. The DAGs are therefore mainly directed at including their own citizens and national stakeholders, whereas at the joint transnational DAGs meetings and the open CSMs, citizens and stakeholder of all parties can come together. This part summarizes the set ups as stipulated in the FTAs with Korea, Colombia and Peru, and agreements that cover investment such as the FTAs with Vietnam, with Singapore and the EU-Canada Comprehensive Economic and Trade Agreement (CETA). As CETA has preliminarily entered into force, it will be the main reference point.5 In CETA, the SD chapter is also more clearly linked to the investment chapter. After Opinion 2/15, the EU separated trade regulation from investment protection and negotiated two standalone agreements with Singapore and Vietnam respectively.6 The SD chapter is therefore not anymore in the same agreement with investment protection regulation. The legal effects the SD chapter will have on the investment protection agreements (IPAs) may have been diluted. However, the SD chapter makes several explicit references to investment.7 See Article 232 of CARIFORUM EPA. For the meetings, see, https://www.eesc.europa.eu/en/sections-other-bodies/other/cariforum-eujcc/events. Accessed 14 March 2019. 3 Orbie et al. (2017), p. 12. 4 See Sect. 7.3.2. 5 CETA entered into force provisionally on 21 September 2017. At the time of writing, the national parliaments in the EU Member States have still to approve it before it can take full effect. 6 The draft trade and investment agreements between the EU and Singapore were signed on 19 October 2018 and received the consent of the European Parliament on 13 February 2019 (in the following: FTA Singapore 2018). As the time of writing, the IPA still awaits ratification by all EU Member States (in the following: IPA Singapore). In October 2018, the European Commission adopted the EU-Vietnam trade and investment agreements (in the following: FTA Vietnam 2018 and IPA Vietnam). At the time of writing, the legal reviews of both agreements are still ongoing. Subsequently, the IPA will need to be ratified by the EU Member States. 7 E.g. Art. 13.1(1), Art. 13.3, Art. 13.10 FTA Vietnam 2018; Art. 12.1.(3), Art. 12.11. Art. 12.12 FTA Singapore 2018. 1 2

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Further, the applicable-law-clauses in the IPAs with Singapore and Vietnam make clear that the investment protection provisions should be interpreted in accordance with other agreements between the parties, which will include the SD chapter.8

7.2 The Legal Framework This section applies the EU external human rights framework to those aspects that can be delivered by mechanisms for civil society consultation and participation. Civil society mechanisms can play a role in realizing the duty to assess through consultation as well as the duty to promote human rights through participation and empowerment. Further, these civil society mechanisms may function as a complementary mechanism for specific participatory rights and consultation duties stemming from EU law and applicable international law in the investment context.

7.2.1 Duty to Assess the EU’s Own Action 7.2.1.1 Continuous Duty: Follow Up and Substantiation of the SIA Civil society consultation and participation as part of the monitoring of investment agreements can be a means to comply with the continuous duty to assess the EU’s own action in several ways. As discussed in Chap. 6,9 those duties result from the duty of care and diligent fact finding in conjunction with Article 21 TEU and Article 205 TFEU. The applicability of this duty to the context of trade and investment agreements was confirmed concretely by the General Court in Polisario and the Ombudsman on the FTA with Vietnam. Further, in her decision on the EU-Turkey Deal, the Ombudsman stressed that the duty to assess EU action in light of its human rights compliance (through a human rights impact assessment (HRIA)) continues during the implementation of an EU foreign policy measure.10 According to her definition of HRIAs, they are an analytical tool to identify ‘the human rights impacts on the affected stakeholders at each stage of the implementation of the agreement concerned [emphasis not in the original]’.11 Doing so is part of demonstrating that

Art. 3.13. IPA Singapore; Art. 3.42(2) IPA Vietnam. See, Sects. 6.2.2.2 and 6.2.2.3. 10 EU Ombudsman, Decision in case 506-509-674-784-927-1381/2016/MHZ on complaints against the European Commission concerning a human rights impact assessment in the context of the EU-Turkey Agreement, 18 January 2017, para. 25. 11 Ibid., para. 29; EU Ombudsman, Decision in case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, para. 25. 8 9

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all necessary factors and circumstances are taken into account,12 which is an obligation stemming from Article 21 TEU and EU fundamental rights.13 She made clear, that broad human rights clauses alone as well as general reports cannot replace this obligation.14 Instead, explicit and continuous assessments of human rights impacts are necessary. As in the FTA Vietnam decision, she repeats that the substantive content of such assessment should comprise the EU Charter of Fundamental Rights (CFR) and international human rights law.15 The assessment of human rights implications thus continues throughout the implementation stage and should ideally be linked to the results of the HRIA conducted prior to the measure. Such a duty could also directly stem from the CFR, especially when specific charter rights are already identified in the SIA as being at risk. The consultation and participation mechanisms should then be tailored accordingly to cover the personal, territorial and material scope of those rights. EU institutions have also interpreted the duty to assess as an ongoing duty. The EU HRIA Guidelines outline the need for ex post evaluation for which the ex ante sustainability impact assessment (SIA) should be a reference point.16 The Better Regulation Agenda, and in particular, the Guidelines on Stakeholder Consultation, acknowledge that stakeholder consultation is a ‘continuous process’ and that the Guidelines apply also ‘when performing an evaluation of a policy initiative’.17 Civil society consultation and participation can be used to follow up on the expected negative as well as positive impacts, to substantiate previous assumptions and to review the completeness of the previous assessment. The positive impacts are often conceived as offsetting the negative impacts and on these grounds used to justify increased pressure on human rights. Therefore, it is essential to confirm with civil society whether such positive impacts materialize. Continuous exchange and dialogue can help to increase the actual benefits when the investment rules are calibrated accordingly. For civil society, these instruments can provide the opportunity to substantiate their claims made during the ex ante consultations, when civil society EU Ombudsman, Decision in case 506-509-674-784-927-1381/2016/MHZ on complaints against the European Commission concerning a human rights impact assessment in the context of the EU-Turkey Agreement, 18 January 2017, para. 29; EU Ombudsman, Decision in case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, para. 25. 13 EU Ombudsman, Decision in case 506-509-674-784-927-1381/2016/MHZ on complaints against the European Commission concerning a human rights impact assessment in the context of the EU-Turkey Agreement, 18 January 2017, para. 25; EU Ombudsman, Decision in case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, para. 11. 14 EU Ombudsman, Decision in case 506-509-674-784-927-1381/2016/MHZ on complaints against the European Commission concerning a human rights impact assessment in the context of the EU-Turkey Agreement, 18 January 2017, para. 31. 15 Ibid., para. 30. 16 DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 13. 17 See, https://ec.europa.eu/info/sites/info/files/better-regulation-guidelines-stakeholder-consultation.pdf. Accessed 14 March 2019. 12

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and potentially affected people usually lack concrete knowledge of the envisaged text of the agreements and are limited to refer to general or previous human rights problems. Likewise, the consultants usually build the HRIAs on quantitative data, wide geographical reach, a multitude of measures and generalizable examples. Those can in fact prove to be unrelated to the investment regulation, as the SIA on the IPA Myanmar correctly stresses.18 Ex post monitoring gives room for individual concerns, discussing in more depth individual exemplary cases and exchanging experiences while being under much less constraints of producing a timely policy outcome that is built on robust data. The inclusion of civil society in ex post monitoring can therefore provide the essential input to ensure continuity and substantiation of the obligatory human rights assessment. 7.2.1.2 Duties of Continuous Consultation During Implementation Such a participatory mechanism could be a means to fulfil the duties stemming from Article 11 TEU. Article 11 TEU requires the EU institutions to generally conduct consultations and enable participation. As explained above, these obligations must be understood as being directed at EU citizens and organizations. Nevertheless, as in the case of HRIAs, these participatory mechanisms are also precisely aiming to enable participation of EU citizens, so that Article 11 TEU should apply to this dimension of DAGs and CSM. Article 11 TEU requires open, transparent and regular consultation. The legal context of Article 11 TEU makes clear that consultation in the terms of Article 11 TEU is not primarily meant to be a tool for better policy making but as part and parcel of participatory democracy.19 Similar, to other principles of open administration (Arts. 15(1) and 298(1) TFEU), also Article 11 TEU is an ongoing duty. These principles should inform the set up and practice of any participatory mechanisms established by EU investment agreements when they are meant to also fulfil EU duties towards its own citizens. However, the focus of this book is the external human rights requirement, hence the EU relations towards third states and their populations. Nevertheless, the requirements of Article 11 TEU are useful for this analysis since they probably give insights about the origin of current concepts and the prevalent aim behind the EU approach. As with the trade-related human rights protection, the Treaty of Lisbon on one hand codified previous practices and on the other elevated these principles to a constitutional mandate against which future practices will have to be measured.20

DG Trade, EU Commission (2016) Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar, Final Report, p. 135. 19 Mendes (2011), p. 11. 20 Ibid., p. 7. 18

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7.2.1.3 C omprehensive Assessment: Inclusive Consultation and Combatting Domestic Exclusion It is part of the duty to assess to gather all (legally) relevant facts and to make oneself aware of the full impact of the investment policies. Therefore, as far as the SIAs identified specifically vulnerable groups or groups that generally risk political, social and economic exclusion, these mechanisms should be geared towards ensuring access for these groups or explicitly reaching out to them. A proactive approach towards those communities and individuals that are usually inhibited from articulating their interests and the deprivations they experience might be necessary to fully grasp all the rights at stake. Otherwise, many human rights concerns will not reach the awareness of policy makers and not be factored into the assessment. This is particularly important in cases in which certain groups are commonly socially and politically excluded in the host states. Possibly, not for every policy initiative a complete assessment of all possible human rights is necessary, but in cases in which particular groups have been identified as being especially at risk of being harmed, the human rights assessment instrument put in place should be especially geared towards their inclusion. An assessment that does not break with existing exclusion is perpetuating discrimination. EU investors might inevitably become complicit in discrimination and human rights abuses. CSMs and DAGs can be used to bridge this gap and offer alternative access points for vulnerable and marginalized people and possibilities of contact with policy makers and business actors. To give an example, that seems to lie on the extreme end but will probably be an upcoming challenge for the EU, it is worth looking at the circumstances of the IPA negotiations with Myanmar. Myanmar has a three-tiered citizenship system in which Burmese Chinese, Nepali and Indian ethnic minorities are not recognized as full-citizens and the Muslim Rohingya are not recognized as citizens at all.21 The Muslim minority, the Rohingya, is completely excluded from many constitutional rights (including fair working conditions) as well as from the elections.22 The mistreatment, displacement and military harassment of the Rohingya in Rakhine state, a state in Western Myanmar which the Rohingya claim to be indigenous to, has been alarming and the mass fleeing of Rohingya to neighbouring Bangladesh, increased information pointing to several massacres conducted by the government military and alleged ethnic cleansing have prompted international condemnation.23 The discriminatory practices in Myanmar go beyond the particular circumstances in Rakhine state and, according to the SIA conducted by the EU, comprise human rights violation in relation to investment and business activity, like land grabbing,

DG Trade, EU Commission (2016) Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar, Final Report, p. 137. 22 Ibid., p. 137. 23 See, e.g. Reuters at the UN (2017). 21

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that especially affects minorities.24 Further, the domestic mechanisms will not be able to mitigate these failures. Myanmar is still due to sign some of major human rights conventions like the International Covenant on Civil and Political Rights (ICCPR), the Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (CAT) or the Convention on the Elimination of all Forms of Discrimination Against Women (CEDAW) and is lacking a reliable human rights complaint mechanism at domestic level.25 The SIA on Myanmar expressly warns that EU investors are likely to become engaged or to be facilitative to continuous discrimination when human rights violations of vulnerable groups remain common practise, such as the employment of children or land grabbing.26 In addition, in Myanmar it is difficult for EU investors to mitigate these problems on their own through self-conducted HRIA and consultations. Private actors need permission by the government for consulting with local communities, which is often not willingly granted.27 Approaches such as promoting CSR and delegating the responsibility to EU investors are of limited potential in these circumstances. Whereas these might be extreme circumstances, they demonstrate that without an inclusive consultation mechanism, the contact between duty-bearers including the EU, states and business actors, and rights-holders might be completely suppressed or the discrimination might remain entirely invisible. Negative human rights impact will not (fully) enter the assessment stage, and policy makers will fail to adjust policies accordingly. An inclusive consultation mechanism is therefore not only a prerequisite for a comprehensive and accurate assessment, as a tool for overcoming domestic barriers to participation it can be key for facilitating empowerment. In that way, it can function as an innovative forum in which all stakeholders, right-holders and duty- bearers, ‘sit at one table’, problems can be made visible and problem-solving strategies be discussed. This empowerment function is discussed in more detail below.28 With regards to the assessment function, the relevant EU actors are aware that a proper assessment requires paying specific attention to the rights of those that are usually ignored. The Better Regulation Agenda as well as the HRIA guidelines state that identifying target groups is one of the key elements of successful stakeholder consultation; target groups are groups that run the risk of being excluded from consultation but are likely to be affected by the policy.29 The Guidelines on Stakeholder DG Trade, EU Commission (2016) Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar, Final Report, p. 100. 25 Ibid., p. 138. 26 Ibid., p. 89. 27 Myanmar Centre for Responsible Business, Myanmar Oil & Gas Sector Wide Impact Assessment, 2014, pp. 80 and 81. 28 See Sect. 7.2.2. 29 Guidelines on Stakeholder Consultation, 6.1.2, https://ec.europa.eu/info/sites/info/files/betterregulation-guidelines-stakeholder-consultation.pdf. Accessed 14 March 2019. 24

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Consultation also stress the importance of including non-organized interests, and a balanced and diverse coverage. Different conditions in developing countries should be recognized. The European Parliament (EP) has already stressed the need for consulting with local communities in the context of EU fishery agreements in order to ensure that their interests are not being ignored when fishery protocols are adopted or policies adjusted.30 Otherwise, there is a high risk that local fishers are on one hand not aware of the changing legal conditions and on the other severely harmed by being deprived of their subsistence. The consultation envisaged by the EP is geared towards problem solving and mitigating e.g. by appropriating financial contribution for the local fishing industry (under the framework of fisheries agreement with coastal development countries and in return for fishing opportunities).31 Also the importance of paying particular attention to the participation of women was acknowledged.32 The problems and risks the EP refer to are also relevant during the negotiation and implementation of investment agreements. The Myanmar Centre for Responsible Business reports on how the lack of consulting local communities can lead to severe infringement of the right to an adequate standard of living.33 Their conclusions are linked to similar concerns as in the EP statements. According to the impact assessment (IA) conducted by the Myanmar Center on foreign investment in the oil and gas sectors, local rural populations are highly vulnerable ‘to social and environmental impacts due to their overwhelming dependence on land-based subsistence agriculture or local fishing’.34 The vulnerability will be higher for at-risk groups within the community—women, minorities and the disabled.35 Further, local communities are rarely notified about expected changes and possibilities to receive compensations. The absence of dialogue impedes local communities from adjusting to changes or from making their voices heard in the process. The implementation of the agreement will remain ignorant to the impacts on their livelihoods. The IA further found incidents in which foreign companies were inaccessible when a problem

For a more detailed discussion on this, see van der Burgt (2013), pp. 325 and 332. European Parliament, Committee on Fisheries, Report on the proposal for a Council regulation on the conclusion of the Protocol setting out the fishing opportunities and the financial contribution provided for by the Agreement between the European Economic Community and the Government of the Republic of Senegal on fishing off the coast of Senegal for the period from 1 July 2002 to 30 June 2006 – Committee on Fisheries – A5-0389/2002, 12 November 2002, p. 21. 32 van der Burgt (2013), p. 332 with reference to; European Parliament, Committee of Fisheries, Report on the proposal for a Council regulation on the conclusion of the Protocol defining, for the period 3 December 2003 to 2 December 2007, the fishing opportunities and the financial compensation provided for by the Agreement between the European Economic Community and the Government of Mauritius on fishing in the waters of Mauritius – A6-0001/2004, 2 September 2004, p. 14. 33 DG Trade, EU Commission (2016) Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar, Final Report, p. 146. 34 Myanmar Centre for Responsible Business, Myanmar Oil & Gas Sector Wide Impact Assessment, 2014, p. 88. 35 Ibid., p. 88. 30 31

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occurred, which is also due to the complications of being granted a permission for direct consultation. Therefore, for investments in such a ‘high-risk environment as Myanmar, it is all the more important to engage with local communities early, regularly and meaningfully’.36 Foreign direct investment (FDI), especially large projects, will stay in the area for decades and will change the physical, legal, economic and social environment profoundly. European FDI, when of large scale and influential, will necessarily build relationships with the local communities. In order to make sure, that these relationships are not abusive and that the rights of the local communities are respected, ongoing engagement with local communities should be facilitated and ideally be properly institutionalized, for instance, directly by the investment agreement—especially when dialogue at domestic level is made difficult. In sum, the duty of assessing human rights implications clearly requires comprehensive consultations. To grasp the entire impact, particular attention should be paid to the inclusion of those groups and individuals that are likely to be most affected but usually excluded from the decision-making at international and domestic level. This requires building institutions that actively reach out to or at least are accessible by those that are marginalized at domestic level, are often outside ‘formalized’ society and that interact and organize in non-institutional spaces.37 Social movements may either deliberately decide to not formally organize or they may be inhibited to do so by domestic legislation. Access should therefore be granted to social movements and interests beyond established organizations and not be made subject to strict admission procedures or requirements. Sufficient safeguards for equal representation and the inclusion of marginalized groups should ideally be prescribed on international level and not left to the discretion of the parties. Further, in order to function as an instrument for continuous human rights assessment and especially as a tool for following up on the ex ante HRIA, these mechanisms need to comprise all relevant human rights and not be limited to a certain set of rights from the outset. Next to providing a tool that could complement comprehensive information gathering, setting up the civil society mechanisms in that way can constitute an alternative venue for human rights realization and thus promotion, unimpaired by the power imbalances on domestic level and in investment arbitration.

Ibid., p. 77. Seck (2008), p. 585; For a discussion on the limits of concepts of open access when social inequalities are not eliminated and on the consequential and in her view preferable existence of parallel discursive arenas, see Fraser (2003).

36 37

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7.2.2 D uty to Promote: Realizing Human Rights Through Participation and Empowerment Further, the EU human rights framework can be broken down into a duty to promote which comprises a prohibition of regression, the duty to be coherent and a duty to advance human rights. With regards to Article 3(5) and 21 TEU, as elaborated in Chap. 2, this conclusion is based on arguments in the literature, the interpretations by the Ombudsman and analogies drawn from case law.38 Chapter 2 argues that the obligation to promote should be perceived as entailing the three elements of non- regression, coherence and advancement. The logic of ‘if you decide to act, then do it properly’ should therefore be applied to all legislation that is meant to implement and realize Charter rights and likewise human rights. In the given context, that would mean that whenever the EU decides to pursue the human rights objective within the investment competence, this has to be done in a way that is coherent with regards the overall framework of the external human rights concept and that is in fact contributing to human rights protection. This section therefore outlines the legal requirements that a consultation and participation mechanism has to comply with in order to fulfill the duty to promote. Next to contributing to the creation of other flanking human rights strategies, a mechanism for consultation and participation can function directly as a means for human rights realization by fostering and supporting participation and empowerment of rights-holders and particularly of those that risk exclusion at domestic level and in the investment regime. 7.2.2.1 Defining Empowerment Through Participation Participation and empowerment are essential elements of human rights and sustainable development and therefore should be integrated into any measure aimed at human rights realization. The empowerment of the rights-holder is a procedural element of human rights realization and human rights based development strategies as well as a goal of both human rights and sustainable development. Definition in Human Rights Law According to human rights law, the means for assessing and monitoring human right impacts must be in compliance with the procedural aspects of human rights law. Further, it is the common understanding in scholarly literature and in the interpretations by UN bodies on trade-related HRIAs that the aim of assessment and evaluation mechanisms is not merely to technically assess a situation. Instead, the HRIA should contribute to creating conditions in which human rights can be 38

Chapter 2, Sect. 2.4.2.

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realized.39 As Simon Walker points out, HRIAs have a long-term goal of empowering rights-holders in a sustainable way by penetrating the root causes of human rights violations such as powerlessness, exclusion and discrimination.40 A proper assessment should establish mechanisms that progressively enable the rights-holders to present and protect their own interests and that bring governments and potentially affected into a dialogue and ultimately ensure equal access to decision making processes. Rights-holders should not merely be subject of the assessment but active participants and beneficiaries.41 Such an assessment mechanism should therefore also be aimed at ‘providing an enabling an environment for human rights realization’.42 Hence, the function of creating a means for realizing human rights is intertwined with the duty to assess action by means of consultation. Definition According to the SD Discourse The UNHCR Principles and Guidelines for a Human Rights Approach to Poverty Reduction Strategies aim for giving guidance for states and institutions on how to integrate human rights norms into poverty reduction.43 These Guidelines adopt the definition initiated by Deepa Narayan for the World Bank, which describes empowerment as ‘a process of increasing the capabilities of poor individuals or groups to make choices and to transform those choices into desired actions and outcomes, and to participate in, negotiate with, influence, control and hold accountable the institutions that affect their lives.’44 According to this definition, states must provide the four key conditions to enable empowerment: access to information, systems of accountability and venues for inclusion/participation and local organizational capacity.45 The UNHCR guidelines also state that ‘salient features of the human rights framework [that] can contribute to empowerment [are] principles of universality, non-discrimination and equality, the principles of participatory decision- making, the notion of accountability, and the recognitions of the interdependence of rights.’46 The EU human rights framework is based on the same features that the UNHCR guidelines identify as the foundation for empowerment. These are the mandate to respect universality and indivisibility of human rights (as enshrined in Walker (2009), p. 36. Ibid., p. 36. 41 Ibid., p. 34. 42 Ibid., p. 36. 43 Office of the United Nations High Commissioner for Human Rights (UNHCR), Principles and Guidelines for a Human Rights Approach to Poverty Reduction Strategies, HR/PUB/06/12, 2004, p. 1. 44 Ibid., para. 18; Narayan (2002). 45 Narayan (2002), pp. 18–22. 46 Office of the United Nations High Commissioner for Human Rights (UNHCR), Principles and Guidelines for a Human Rights Approach to Poverty Reduction Strategies, HR/PUB/06/12, 2004, para. 20. 39 40

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Article 21 (1) TEU) and the prominent role for equality and non-discrimination as general principles of EU law.47 According to both definitions, a clear identification of rights-holders and the responsible agent for change is an important methodological tool to shift power imbalances.48 To contribute to the development of the capacities of ‘duty-bearers’ to meet their obligations and/or of ‘rights-holders’ to claim their rights’ is one of the three key statements of the UN Common Understanding to a Human-Rights-Based-Approach to Development Cooperation (HRBA).49 The involvement of international and national human rights experts can be supportive to empowerment. On one hand, it allows taking advantage of already generated knowledge; on the other, it supports the capacity building efforts of local human rights actors.50 Such mechanisms can provide an opportunity for marginalized people and communities to create networks. At the same time, they may help to overcome the social division between different interest groups. Artificial fragmentation of topics into human rights and trade issues and a lack of mutual understanding amongst the actors remain part of the root causes for the disregard.51 A participatory mechanism enshrined in international investment agreements can function as a problem solving mechanism and as such not substitute but possibly complement the limited legal protection. Rights-holders can articulate their experiences, directly address duty bearers and propose remedies; all of these are acts of empowerment. Threats for Empowerment Following these definitions, in order to function as a means for empowerment, participatory mechanisms should be designed to enable long-term perspectives and not be limited to occasional consultation. The set up should be aimed at overcoming social exclusion that exists at domestic as well as at international level. As discussed above in the context of inclusive consultation,52 the accessibility by marginalized groups and those forming their interests in non-institutionalized spaces is crucial. Further, the rules on membership should allow for contestation of the genuine representativeness of member civil society organizations (CSOs).53 Non-governmental organizations (NGOs) are usually neither democratically legitimized by nor accountable to those they claim to speak for.54 Open meetings should therefore be geared towards allowing for access beyond established NGOs. Actual influence on the decision-making is crucial. Mechanisms for civil society involvement should allow for contestation and fundamental criticism of prevailing Such as gender equality (Article 8 TFEU) and non-discrimination (Article 10 TFEU). Walker (2009), p. 33. 49 United Nations Development Group (UNDG), The Human Rights Based Approach to Development Cooperation Towards a Common Understanding Among UN Agencies, 2003. 50 Walker (2009), p. 38. 51 Ibid., p. 38. 52 See, Sect. 7.2.1.1. 53 Montoute (2011), p. 11. 54 Meunier (2003), p. 86. 47 48

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investment policies. If participants are forced to formulate their claims in constructive terms in order to be heard, civil society participants run the risk of being co- opted into collaborating for the improvement of the current investment regime and of being instrumentalized for increasing public support and democratic legitimacy.55 When the influence on decision-making is restricted and fundamental criticism is excluded, there is a high risk that actual empowerment cannot materialize. However, the fact that influence from outside the system is even less promising might force CSOs to become part nevertheless and adjust their agendas to be less transformative (the so called ‘insider-outsider dilemma’).56 This may also entail that civil society actors that are not willing or capable of formulating their interests and needs in collaborative terms will be further marginalized and have fewer chances of becoming potentially influential. These risks for empowerment have been assumed to be existent—and have been substantiated with occasional evidence—by legal and social science literature on civil society participation in EU trade policies.57 A study on the World Trade Organization (WTO) has shown how civil society actors were compelled to cooperate and thereby to reinforce the underlying paradigm of an institution that they were trying to change.58 The participating critical actors did not manage to initiate any discourse on fundamental questions.59 Jan Orbie et al. have investigated the risks of co-optation specifically in the case of CSMs in EU trade agreements. Their empirical findings are discussed in more detail below.60 Further, restricted influence and the absence of tangible results may have the side-effect of producing consultation fatigue and thereby undermining effective and comprehensive consultation and the fulfilment of the duty to assess.61 In sum, for a participatory mechanism to qualify as an instrument for sustainable development as well as a human rights realization, it has to be designed and conducted in a way that ensures the realization of human rights by empowering rights-holders and in context of the investment regime that counters the inequality of rights protection by promoting the equality of participation. Empowerment both from a human rights perspective and from a development perspective requires inclusiveness, identification of rights-holders and duty-bearers, actual influence, room for true contestation, and institutionalized response mechanisms. A clear identification of rights-holders and duty-bearers in combination with an institutionalized response mechanism also enforces accountability.

See, the comprehensive theoretical and empirical study on the dangers of co-optation in CSMs as part of EU trade agreements, Orbie et al. (2017), which is discussed in more detail below. 56 Ibid., pp. 6 and 13. 57 Ulmer (2015), Campling et al. (2016), and Orbie et al. (2017). 58 Hopewell (2015). 59 Orbie et al. (2017), p. 7. 60 See Sect. 7.3.2. 61 Orbie et al. (2017), p. 4. 55

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7.2.2.2 Specific Rights to Participate The function of such an empowerment strategy is not limited to establishing an alternative forum at the international level, but can present essential support for transforming local institutions by providing the space for discussing domestic failures to comply with other participatory rights, which are vested in the investment agreement or in international law more broadly.62 A transnational participatory mechanisms established by an investment agreement could be designed to directly realize specific rights to participate stemming from EU as well as international human rights. They can also function as a complementary mechanism for the realization of these rights at the national level and therefore support the transformation of local institutions. This section briefly outlines specific rights of participation stemming from the CFR and international human rights law that are relevant in the context of investment treaty implementation. With respect to the CFR, a participatory mechanism could also be a means to comply with Article 41 (1) CFR, the right to good administration, which, as stated above, must be distinguished from individual rights such as the right to be heard in paragraph 2, which are not applicable to measures of general application unless explicitly prescribed so.63 The rights listed in Article 41 (2)–(3) CFR are specific but only exemplary sub-categories of this right.64 Therefore, Article 41 (1) CFR could apply to administrative acts that are part of the establishment and execution of monitor mechanisms. According to Craig’s expansive interpretation of Art. 41 (1) CFR, the right to good administration would comprise most of the aspects listed in the EU Ombudsman Code of Good Administrative Behavior, such as non-discrimination, proportionality, impartiality and objectivity.65 It is further closely related to the duty of care, so that in terms of the substantive scope the above stated applies.66 To invoke Article 41(1) CFR as a subjective right, one must be individually and adversely affected by an administrative act.67 In contrast to objective principles of good administration, of consultation and diligent fact finding, which apply to the conclusion and implementation of the investment agreement as such, Article 41(1) CFR requires a specific measure within the scope of CSMs and DAGs to become applicable. One could think of incidents such as failing to respond to evidence or statements submitted by participants with regards to human rights impacts or when certain actors are being excluded from a CSM meeting. Nevertheless, DAGs and CSMs should be set up and conducted in a way—including the corresponding procedures—that would ensure that the treatment of participants is in line with the requirements stemming See, in general on how to transform other institutions by clearly identifying the duty bearers and the gaps between norms and implementation, Walker (2009), p. 33. 63 Craig (2014), para. 41.32. 64 Ibid., para. 41.09. 65 Ibid., para. 41.10. 66 Ibid., para. 41.25. 67 Case C-367/95 P, Commission v Sytraval and Brink’s France SARL, ECLI:EU:C:1998:154, Judgment of 2 April 1998, para. 47. 62

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from Article 41(1) CFR. It is important to take note, that consultation and monitoring mechanism as analyzed and proposed here cannot substitute an effective remedy, which is guaranteed by Article 47 CFR. Further, many human rights conventions foresee specific participatory rights. Some of these conventions explicitly apply to the implementation of trade and investment agreement by virtue of being part of the SD chapters. The following section does not aim for presenting a list of all participatory rights but gives some examples of participatory rights that are likely to become relevant and can to some extent be anchored in trade and investment treaties. This indicates that also the trade legislators have acknowledged their relevance. The DAGs and CSMs could be a means to support their actual implementation. Precisely, DAGs could be a means to comply with the EU’s complementary obligations it has towards people in third countries stemming from human rights law and the EU law duty to promote. The latter includes the support of third countries to realize their primary human rights obligations. The specific human rights include, first of all, Article 25 of ICCPR. Also the EU HRIA guidelines acknowledge the relevance of Article 25 ICCPR in the context of trade and investment treaty-making. According to the HRIA guidelines, consultation during the HRIA is not only a means for gathering information but also explicitly for realising the right to participation.68 Because the duty to assess is a continuous one, as it is also acknowledged in the same guidelines, Article 25 ICCPR should continue to be relevant. In the context of environmental rights, the Aarhus Convention introduced a sophisticated and far-reaching concept of participation.69 The EU is a party to the Convention since May 2005.70 The CSM and DAGs could offer an opportunity to comply with the Aarhus Convention and specifically the duty to enact legislation that enables the realization of the right to receive environmental information and to participate in environmental decision-making (cf. Article 4–5, 6–8). Although, this duty strictly speaking is limited to each party’s jurisdiction, the DAGs and CSMs could be a means for the EU to comply with its duty towards its own citizens and its duty to promote the compliance of others. The Aarhus Convention is based on Principle 10 of the Rio Declaration,71 which is explicitly mentioned in many SD chapters.72

DG Trade, EU Commission (2015) Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives, p. 11. 69 Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters (Aarhus Convention), 25 June 1998. 70 On 17 February 2005, the EU adopted the Decision to conclude the Aarhus Convention, Decision 2005/370/EC. 71 The Rio Declaration on Environment and Development sets out 27 guiding principles that were produced at the Earth Summit in June 1992. 72 See, for instance, FTA EU-Colombia-Peru, Art. 267; CETA, Art. 22.1. 68

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The ILO Convention No. 169 on Indigenous and Tribal Peoples is another good example, because the Convention includes special consultation rights73—among those is the right to free, prior and informed consent (FPIC)—that are critical in the context of adopting investor-friendly legislation and the establishment and inflow of new business activity. These tensions were particularly pointed out by CSOs in the CSMs conducted so far. For instance, failures to comply with the ILO Convention No. 169 during the adaption of investment promoting legislation were raised by the civil society representatives in the open CSM under the FTA Peru-Colombia.74 The duties of cooperation and consultation enshrined in the Convention No. 169 are triggered when policies and legislation are likely to impact on their traditional right to land, their handicrafts, their customs and traditions, rural and community-based industries, subsistence economy and traditional activities such as hunting and fishing.75 The convention prescribes the recognition of indigenous and tribal customary industries and lands, and the instalment of safeguards in close cooperation with the peoples concerned. The ILO convention No. 169 also includes an obligation to facilitate cooperation between indigenous and tribal peoples across borders including in economic fields (Article 32) and the establishment of mechanisms for fulfilling the convention rights and duties of co-operation (Article 33). In this respect the DAGs and CSMs could prove to be a valuable alternative venue, compared to the disregard of FPIC in investment arbitration as particularly seen in the Pezold case.76 The EU is a strong supporter of the development and promotion of ILO conventions ever since social clauses became part of trade agreements.77 Although, ILO conventions are a common reference point in SD chapters—albeit with variations in degree and precisions—compliance with the ILO convention No. 169 is usually not directly included in EU FTAs and much depends on how broadly references to labour standards, i.e. in the non-derogation clauses, are interpreted.78 However, the E.g. Art. 6 and 7 of the ILO Convention No. 169. Meeting of all DAGs (EU, Peru and Colombia) and the Sub-Committee and open CSM on 7th/8th December 2016 in Brussels video recording of the meetings, accessible via http://trade. ec.europa.eu/doclib/events/index.cfm?id=1582. Accessed 14 March 2019. 75 E.g. Art. 2, 6, 7 and 23 of the ILO Convention No. 169. 76 See, Chap. 4, Sect. 4.3.2. 77 Orbie and Tortell (2009) and Ferri (2015). 78 For example, Article 3(2) (Article 13.1 (2) FTA Vietnam 2018) of the SD chapter in the FTA Vietnam confirms each Party’s obligations under the ILO, but Vietnam has not ratified the ILO Convention No. 169. However, the EU also commits to effectively implement the ILO conventions ratified by the EU Member States (Article 3(5)), of which Denmark, the Netherlands and Spain have ratified the ILO Convention No. 169 (Article 13.4 (4) FTA Vietnam 2018). Peru and Colombia have both ratified the ILO Convention No. 169. Nevertheless, Article 269 (3) FTA Peru-Colombia only reaffirms the core labour standards. In the FTA Vietnam, the chapter encourages the ratification of the up-to-date conventions of the ILO (e.g. Article 3(4), Article 14(d))—albeit in rather weak language (‘will consider … taking into account its domestic circumstances’) (Article 13.4 (3); Art. 13.14 (1)(d) FTA Vietnam 2018). The up-to-date Conventions (as they are called in the ILO) include the Convention No. 169 on Indigenous and Tribal People. The FTA Peru-Colombia only prescribes a duty to exchange information (Article 168 (4) FTA PeruColombia) with regards to the progress of ratifications. However, ILO conventions or ‘ILO works’ 73 74

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ILO Decent Work Agenda79 and the ILO Declaration on Social Justice for a Fair Globalization of 200880 are frequently cited. Civil society meetings and DAGs would add another venue for pursuing social dialogue and tripartism, which is one of the four fundamental strategic objectives that the ILO regime aims to achieve. The understanding of social dialogue and tripartism comprises dialogue ‘between governments and the representative organizations of workers and employers within and across borders’ (emphasis not in the original).81 Liam Campling et al. identify political representation of workers as one of three key dimensions—next to legal protection and employment conditions—which could be improved by labour standards in EU FTAs.82 In that regard, DAGs and CSM can be a direct means for realizing these ILO objectives next to monitoring the implementation of other ILO fundamental principles such as the Freedom of Association, which is always cited in EU SD chapters.83 Civil society mechanisms established by investment agreements can be a means to realize participation rights directly but more over they could function as a complementary mechanism as well as monitoring mechanism for the implementation of these rights at the national level. Groups and individuals that enjoy participatory rights, which were neglected in the domestic legislative or administrative processes could base their claims on transparency clauses or non-derogation clauses of the investment treaty and raise them during DAGs and CSMs. Transparency clauses usually require the parties to enable interested persons to comment on general state action that affects sustainable development issues and to examine such comments.84 Ignoring participation rights can be interpreted as a reduction of protection that is usually afforded in national environmental and labour laws.85 For being an effective monitoring, complementary and ultimately an empowering mechanism, follow-ups on those alleged violations are necessary. more generally may play a role for settling disputes under the SD chapter, e.g. Article 16(3) of SD chapter of the FTA Vietnam (now “activities of the ILO” Article 13.16 (3) FTA Vietnam 2018). The FTA Peru-Colombia also stresses the transnational cooperation to investigate, monitor and effectively implement fundamental ILO conventions (Article 286 (b)). However, the ILO Convention No. 169 is not part of the fundamental ILO conventions. For the list of the fundamental ILO conventions, see, http://www.ilo.org/global/standards/introduction-to-international-labour-standards/ conventions-and-recommendations/lang%2D%2Den/index.htm. 79 E.g. FTA Vietnam, Art. 1.1 SD chapter (now Article 13.1 (2) FTA Vietnam 2018); CETA, Art. 23.3.2. 80 E.g. Art. FTA Singapore, 13.1.1 SD chapter (now Article 12.1 (1) FTA Singapore 2018); CETA, Art. 22.1.1. 81 ILO Declaration on Social Justice for a Fair Globalization, adopted in 2008, by all ILO members, p. 7, http://ilo.org/global/about-the-ilo/mission-and-objectives/WCMS_099766/lang%2D%2Den/ index.htm. Accessed 14 March 2019. 82 Campling et al. (2016), p. 367. 83 See, e.g., CETA, Art. 23.3.1, FTA Singapore, Art. 13.3.3 (now Article 12.3 (3)(a) FTA Singapore 2018), FTA Vietnam, Art. 3.2 SD Chapter (now Article 13.4 (2)(a) FTA Vietnam 2018). 84 E.g. FTA Colombia-Peru, Art. 288. 85 E.g. FTA Colombia-Peru, Art. 277.

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7.2.3 Conclusion on the Parameters The contributions of those parts of civil society that are most affected are essential to comply with the duty of continuous and comprehensive human rights assessment. In order to fulfil this function, the civil society mechanisms should comprise all relevant human rights, and especially those that have been identified as being at risk in the ex ante HRIA. The mechanisms should further be especially geared towards including those groups that are expected to be vulnerable to negative impacts and run the risk of being excluded at domestic and international levels, which are referred to as target groups in the pertinent EU guidelines. Especially in contexts in which consultation is inhibited or completely lacking both between governments and affected persons, as well as between foreign business actors and local communities, these mechanisms can be designed to bridge these gaps. In order to comply with the duty to promote those human rights that are part of the sustainable development agenda as well as to realize human rights more broadly, the DAGs and CSMs should be designed and conducted in a way that contributes to the realization of specific participatory rights and to the empowerment of rights- holders generally. For both objectives as well as for effective human rights realization, the design and conduct of DAGs and CSMs must ensure independence from local governments in order to create a safe space in which groups and individuals that are usually disregarded can articulate the deprivations they experience freely. An equal representation of interests is crucial to overcome domestic patterns of social and economic exclusion which includes ensuring accessibility for unorganized and non-institutionalized interests. It is crucial to clearly identify rights- holders, duty bearers, problems and possible solutions and to institutionalize procedures for governmental responses and follow-ups to ensure accountability. When breaches of the SD provisions are put forward by civil society backed up by (prima facie) evidence, this has to lead to consequences like further investigation or triggering consultation and dispute resolution mechanisms. There must be transparent assessment of the concerns raised and the real possibility to influence decision- making. Empowerment presumes that fundamental criticism and disagreement with the prevailing investment policies can be expressed freely and is taken into consideration. The main threats for empowerment are consultation fatigue and co-optation. Empowerment can be achieved by setting up these mechanisms in a sustainable manner aiming at creating long-term access to the decision making by linking the topics of discussion to the ex ante HRIA as well as to commitments and declarations made during earlier meetings and by institutionalizing consequences. Further, linkages to domestic mechanisms should be established, such as human rights bodies, trade unions or other mechanisms in place for realizing participatory rights and rights to judicial remedy at domestic level. In sum, for fulfilling the duty to assess and the duty to promote, certain conditions as to the substantive scope, independence and inclusiveness have to be met by these mechanisms. Further, to qualify as a means for human rights realization (albeit

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only limited to those rights falling under the SD chapter), real possibility to influence, room for true contestation and institutionalized response mechanisms must be guaranteed. The latter three requirements are also important incentives for participating in consultations and a procedural requirement for human rights assessment and therefore cannot be clearly separated from the duty to assess. In the following, the rules in the books and the rules in practice on DAGs and CSMs are measured against these conclusions. The following section also sketches reforms that go beyond these red lines but have the potential to increase the human rights protection and are indeed possible under the current legal framework. In addition, the assessment concludes with a structural critique of the prevailing concepts of these instruments that conflict with an understanding of these mechanisms as tools for human rights realization.

7.3 P otential and Shortcomings of the Current Concept, Set Up and Practice This section describes and critiques how DAGs and CSMs are designed by current trade agreements. This is done in light of the function they are meant to fulfil, i.e. monitoring the SD chapter and involving civil society,86 and in light of the function they could fulfil as long as they comply with the legal requirements, i.e. assessing, protecting and realizing human rights. Some practical examples illustrate the potential DAGs and CSMs have for voicing concrete human rights concerns related to FDI and which should give rise to adjusting polices accordingly. At the same time, these examples show the current shortcomings that partly stem from conceptual limitations, from limitations of the set up and partly from failures of implementation. The description is based on the design of these mechanisms in the FTA South Korea, FTA Colombia-Peru and the AA Central America, which do not cover investment, but may function as a template for future investment agreements, such as CETA, which certainly covers investment and the IPAs with Vietnam and Singapore, where the future relevance is less clear. In addition, illustrative examples are taken from the only comprehensive legal and empirical study of EU DAGs and CSM conducted so far by Orbie et al.87 as well as from the few semi-structured interviews of participants conducted by the author. The current function of DAGs and CSMs is only limited to the SD chapter. They are thus only designed to cover the human rights that are part of this chapter, i.e. environmental rights and workers’ rights (usually the ILO core labor standards and core multilateral environment protection agreements). While the duty to assess is Other possible intentions behind the establishment of DAGs and CSMs mechanisms that are not functional to human rights protection are not evaluated. For an analysis of other functions, see Orbie et al. (2016), pp. 25–36. 87 Orbie et al. (2016, 2017) and Martens et al. (2016). 86

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only met when all relevant human rights are covered, the duty to promote can be fulfilled as long as the policy instrument in question contributes coherently and effectively to those objectives for which it was designed. Therefore, the following analysis of the institutional design and the practice looks specifically into whether DAGs and CSMs fulfill the duty to promote as a sustainable development m echanism. However, because this instrument’s function is limited to environmental and labor rights, it would not qualify as a full-fledged human rights instrument. The EU has opted for only pursuing the objective of sustainable development (Art. 21 (2) (d) TEU). Apart from the essential-elements clauses and flanking measures such as human rights dialogues, the EU does not have any explicit human rights instrument in the context of trade and investment in place, leaving alone one that involves civil society participation. Not having any effective human rights instrument in place could be in breach of the duty to respect human rights (Article 21 (1) TEU) in the given context in which human rights are evidently at risk by investment policies.88 Secondly, such a selective approach is questionable in light of the principles of universality and indivisibility of human rights. For these reasons, this chapter also points to the reforms necessary for turning these mechanisms into a means for human rights realization in a broader sense. This does not mean that this proposal is the only way of realizing the duty to promote with regards human rights, but it is one option and a promising one. It is however important to keep these separate starting points in mind. A discussion of the legitimacy of such a division between sustainable development and human rights and what this means for the current concept of the DAGs and CSMs follows in Sect. 7.4.1.

7.3.1 The Institutional Design All of the SD chapters require the parties to consult existing or to establish new DAGs (e.g. CETA, Art. 23.8.4 and Art. 24.13.5). As to their set-up and selection of members, the only requirements dictated by the agreements are independence and equal representations of economic, social and environmental interests. Exceptions are the FTA Korea that only includes the option of newly establishing a DAG (Art. 13.12.4) and the FTA Colombia-Peru (Article 281) that in contrast refers to domestic mechanisms and requires the establishment of new mechanisms only in case no such mechanism exists at domestic level. The latter agreement also omits independence as a requirement. A DAG that is based on a domestic mechanism or even linked to or chaired by government agencies as in the case of Peru and Colombia runs the risk of replicating domestic power imbalances and domestic patterns of exclusion. Therefore, it is replicating the power balance represented in investment law making and arbitration. Groups oppressed by local governments may not be It would be in breach of the principle of human rights protection, because the inequality of rights protection has been identified as a major problem of the current approach in EU investment making.

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admitted to the meetings, not be able to speak up freely or are putting themselves at risk when doing so.89 Further, a forum chaired by the government is unlikely to be an effective instrument for the organization and the discussion of fundamental criticism of prevailing trade and investment policies. However, the interviews conducted by Orbie et al. revealed that the effects of government officials being present mainly depend on how the government and their interests are perceived by civil society. The presence of EU officials has been perceived as making the meetings more efficient because of the direct communication. With regards to other officials in the context of the FTA Peru-Columbia and the CARIFORUM concerns have been raised that their presence may have impeded open discussions.90 The EU establishes a new DAG for each agreement under the auspices of the EESC.91 The parties are also required to set up an intergovernmental body (in the following referred to as the SD Committee) consisting of senior government officials. The SD Committee is tasked with monitoring the implementation of the SD chapter and with assessing the impacts of the agreement on SD matters.92 The SD Committee is also involved in the dispute resolution that covers the SD chapter. The dispute resolution responsible for SD matters is disassociated from other dispute mechanisms such as investor-state dispute settlement (ISDS). It usually comprises governmental consultations as the first step, which are handed over to a Panel of Experts (or Group of Experts) in case of non-agreement (e.g. CETA, Art. 23.10). These panels of experts are appointed ad-hoc from a pre-selected roster of individuals with expertise in trade, labor, environmental law or in the resolution of disputes, including nationals from both parties and nationals of a third state (e.g. AA Central America, Art. 297.2). These experts should be independent from the government and from organizations presented in the DAG, which is additionally safeguarded by conflicts of interests’ provisions (e.g. AA Central America, Art. 297.4, FTA South Korea, Art. 13.15.3, FTA Colombia-Peru, Art. 284.3). The main function of the DAGs is to submit opinions and recommendation to the parties directly or to the intergovernmental bodies (e.g. in CETA, Article 23.8.5). The linkages between the DAGs and the dispute resolution mechanisms of the SD chapter vary between the agreements. The dispute mechanism is an important venue for influencing the actual decision-making with regards to the SD chapter. The link CSOs from Peru and Colombia raised these concerns during the meeting of all DAGs (EU, Peru and Colombia) and the Sub-Committee on 7th December 2016 in Brussels, video recording of the meetings, http://trade.ec.europa.eu/doclib/events/index.cfm?id=1582. Accessed on 14 March 2019. 90 Orbie et al. (2016), p. 23. 91 So far, the EESC established a DAG for the FTA Korea, FTA Colombia-Peru and the AA Central America, see http://www.eesc.europa.eu/?i=portal.en.external-relations-europe-internationaltrade-monitoring. Accessed on 14 March 2019. 92 Despite different names given to these intergovernmental bodies, they usually have the same functions across the agreements, see, the Specialized Committee on Trade and Sustainable Development, FTA Vietnam, Art. 15.2 (now Art. 13.15 (2) FTA Vietnam 2018); Board on Trade and Sustainable Development, FTA Singapore, Art. 13.17 (now Art. 12.15(2) FTA Singapore 2018); Sub-Committee on Trade and Sustainable development, FTA Colombia-Peru, Art. 280.2. 89

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ages to the government consultation range from no formal connection (i.e. in the FTA Singapore and the AA Central America) to the option for the SD Committee to seek advice from any other expert organization or individual, which explicitly or implicitly includes the DAGs (e.g. FTA Vietnam, Art. 16.5).93 Only in CETA and the FTA Korea, the language is stronger by stating that DAGs shall be consulted either during the government consultation or by the panel of expert (CETA, Art. 23.9.4; FTA Korea, Art. 13.15.1). These panels of experts are usually under an obligation to inform the DAGs about their decisions (e.g. CETA, Art. 23.10.12, Art. 24.15.1) and DAGs as well as other CSOs can submit observations on the implementation of the panel’s decision on their own initiatives (e.g. FTA Korea, 13.14.4; FTA Vietnam, Art. 17.994). In the FTA Singapore, information as well as observations by the DAGs are only channelled through the intergovernmental body (e.g. FTA Singapore, Art. 13.17).95 Additionally, in some cases, the panels are required to pay due attention to the needs of the developing country (e.g. AA Central America, Art. 296, 300.3) which may lead to an increased importance of DAGs and the CSMs since they can provide useful insights. However, it becomes apparent that the influence on actual decision making—at least in formalized terms—is limited. At most, governments may seek advice or shall consult the DAGs. It is therefore left to the discretion of the parties to decide what happens to the input from civil society. The agreements only foresee an exchange of information. Further, it is important to note that there are no formal links to the dispute resolution of the investment chapter. It remains to be seen what consequences discussion on investment-related issues during civil society meetings will have on the interpretations by investment tribunals or whether investment standards might be adjusted subsequently. In CETA, the SD Committee on labour provisions has the right to make recommendation for treaty amendments to the CETA Joint Committee. The omission of any institutionalized response mechanisms that would oblige the governments or the SD committees to consider and react to the claims brought forward by the participating CSOs may in practice limit these civil society mechanisms to an input giving or information disseminating tool. In light of any real possibility for influence being restricted or depending on the parties’ discretion and in the absence of an institutionalized response mechanisms, two main pillars for empowerment are missing. Next to the DAGs, the agreements prescribe open sessions with other CSOs or the public at large. These CSMs are usually conducted on an annual basis (or “when necessary”) and mostly with the SD Committee being present (e.g. FTA Singapore, Art. 13.15.496; AA Central America, Art. 295.2; FTA South Korea, Art. 13.13.3, FTA Colombia-Peru, Art. 282.1). Other CSOs and other stakeholders that are not members to the DAGs can often also submit observations to the dispute resolution mechanisms or to the governments directly (e.g. CETA, Art. 23.10.12; FTA Now Art. 13.16 (5) FTA Vietnam 2018. Now Art. 13.17 (9) FTA Vietnam 2018. 95 Now Art. 12.17 (9) FTA Singapore 2018. 96 Now Art. 12.15 (3)(4) FTA Singapore 2018. 93 94

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Colombia-Peru, Art. 283.2). However, more often the initiatives have to be taken by the intergovernmental bodies (e.g. FTA Korea, Art 13.15.1). Generally, albeit with slight variation, public participation and transparency are explicitly encouraged as well as the publication of reports and decisions of the panels of experts and the SD Committees, but opt-out options are available (e.g. CETA, art. 24.7.4; AA Central America, Art. 294.3). As to the duty to assess, it is important to note that some agreements expressly require the parties to continuously review their SIAs including stakeholder consultations (e.g. CETA, Art. 22.3.3; FTA Colombia-Peru, Art. 279). However, there are usually no further proceedings prescribed that could give a clear and transparent role for civil society. Further, the practice so far showed that the substantive scope of these meetings was strictly limited to the SD chapter and did not leave room for taking on other human rights connected to the respective SIA. However, civil society consultation plays an essential role for ensuring that a HRIA is comprehensive and accurate. It would be an important step for ensuring compliance with the continuous duty to assess all relevant facts to link the duty to re-assess to ex ante SIAs with a civil society mechanism that guarantees inclusiveness and especially the involvement of those groups that have been identified as being at risk.

7.3.2 The Practice The DAGs are free to set up their own rules of procedure and decide on the terms of memberships as well as the frequency of their meetings. As of 2019, the EU DAG on the FTA Colombia-Peru, for instance, has met 11 times, on a twice a year basis, and 4 times with its counterparts and the SD Committee.97 The members of the EU DAGs are usually trade unions, business or employer organizations and other NGOs like environmental, human rights (including business and human rights) and fair-trade organizations. In addition, international NGOs are included (e.g. like the 11.11.11 Platform Europe Peru (PEP) in the case of the EU DAG on the FTA Colombia-Peru), which may facilitate international cooperation amongst civil society actors. In all EU DAGs, business organizations make up the majority,98 which questions the compliance with the balanced representation requirement. For the appointment of members to an EU DAGs, the Commission starts a public call and members are usually selected by the chair. However, the 97 See, https://www.eesc.europa.eu/en/sections-other-bodies/other/eu-colombia-and-peru-fta/ events. Accessed 14 March 2019. 98 E.g. in the EU DAG on the FTA Colombia-Peru, the 17 members consist of 4 Trade Union representatives, 8 business and employer representative and 5 NGOs/different interests groups, amongst the latter one environmental and one general human rights NGO, see http://www.eesc. europa.eu/?i=portal.en.international-trade-monitoring-eu-colombia-peru-members. Accessed on 14 March 2019.

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selection criteria are not clear.99 Contrary to the EU, the trade partners usually do not publish a list of members. In the case of Peru and Colombia, the selection procedures were also not known to the local NGOs.100 Even once CSOs have achieved the status of a member; it was not clear what the next steps are and how they can participate.101 As Orbie rightly points out, the establishment and the rules of procedures for the DAGs are still at the experimental stage.102 The same might be true for other problems with the logistics and the organization of the first meetings that were considered a failure by CSOs and governments alike.103 However, ineffective organization and the lack of allocated resources presents a major stumbling block for meaningful participation if not improved. For the CARIFORUM participation mechanism, observers have concluded that capacity building with regards to the preparation, the attendance and the quality of input have been identified as the most important missing element.104 The predominant practice of selection presents another hurdle for inclusiveness. Membership is usually restricted to established organization, although this is not prescribed by the trade and investment agreements. As explained above, accessibility for communities and individuals that choose not to or experience practical and legal difficulties in formally organizing is crucial for ensuring inclusive participation. This is especially true for those that are already marginalized at domestic level. EU policy makers seem to be aware of the problem of genuine representativeness, but it is also perceived as a necessary trade-off for an ensuring effectiveness, capacity and expertise.105 However, as of yet, the minimum criterion of independence is not enforced. The composition is mainly left to each party and equal representation, despite many questionable cases, has not been enforced through the dispute resolution mechanisms or outside of it. In case of the South Korean DAG, the government oversaw the selection of the members, and did so in a non-transparent manner. Scholarly literature as well as NGOs have pointed out, that although the selected members formally appear to present all interests in a balanced way; the selected individuals are in fact professors that closely cooperate with the government.106 According to Orbie, the EU Commission was trying to pressure the South Korean government to include one of South Korean’s major labour federations,107 which in the end refused to participate.108 Despite these limitations in the set up and the current practise, they have been examples in which concrete human rights concerns related to foreign investment Orbie et al. (2016), p. 18. Ibid., p. 19. 101 Ibid., p. 19. 102 Ibid., p. 25. 103 Ibid., p. 23. 104 Montoute (2011), p. 8. 105 Ibid., p. 10. 106 Interview with a legal scholar from South Korea. 107 Orbie et al. (2016), p. 19. 108 Interview with a legal scholar from South Korea. 99

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and business misconduct were raised and linked to the provisions in the agreement. During the joint meeting of all three DAGs (EU, Peru, Colombia),109 a CSO from Peru pointed to recent legislative changes aiming to attract FDI by lowering environmental protection and curtailing indigenous communities’ rights to land.110 Next to the substance, also the adoption of that legislation was allegedly in breach of the right to free, prior and informed consent as enshrined in the ILO Convention No. 167. Such a law would be a breach of the non-derogation clause (in this case Art. 277 of the FTA Colombia-Peru). Further, the process of the adoption could be a breach of Art. 288 of the FTA Colombia-Peru that prescribes transparency and participation of interested parties during the adoption of laws on issues covered by the SD chapter. Further, although the FPIC right is not explicitly covered by the FTA Colombia-Peru, there are indirect links such as the general obligations of participation and transparency and the general relevance and openness towards further ILO conventions (e.g. Art. 269.4 FTA Colombia-Peru). Another example is a public letter from the chair of the EU DAG under the AA Central America to the presidency requesting a designated session to follow up on several human rights abuses including killings in the context of a mega hydro project in Honduras that was funded by EU sources and supplied by EU companies.111 In the reply, the president makes clear that the DAG is not mandated to examine particular cases, but commits to conduct a workshop on CSR with all relevant stakeholders as part of the next meetings.112 Such workshops or technical seminars seem to be commonly held complementary to the DAGs and the intergovernmental meetings.113 They could have potential to support capacity building of all stakeholders as well as to function as a problem-solving mechanism, e.g. by developing concrete flanking measures such as technical or financial assistance. The examples above show on one hand the potential of DAGs for serving as a platform for articulating FDI-related human rights violation occurring in the domestic sphere and the potential of trade and investment agreements to serve as a sanc Meeting of all DAGs (EU, Peru and Colombia) and the Sub-Committee on 7th December 2016 in Brussels, video recording of the meetings, see http://trade.ec.europa.eu/doclib/events/ index.cfm?id=1582. Accessed on 14 March 2019. 110 The Law 30230 has been criticized by many NGOs for curtailing rights of indigenous people and disproportionately affecting women in order to easier transfer land to foreign investors, see, e.g., http://rightsandresources.org/en/blog/new-law-in-peru-to-severely-curtail-land-rights-forindigenous-peoples-and-smallholder-farmers/#.WO-c2Ge7qUk. Accessed 14 March 2019. 111 Letter by Karim Lahidji, FIDH President, to Mário Soares, the presidency of the EU domestic advisory group of the EU-Central America association agreement, Request to set business and human rights on the agenda of the EU-Central America association agreement, 23 May 2016, see https://fr.scribd.com/document/314601371/Put-business-and-human-rights-on-the-agenda-of-theEU-Central-America-association-agreement. Accessed 14 March 2019. 112 Letter by Mário Soares to Karim Lahidji, Response to FIDH request to set business and human rights on the agenda of the EU-Central-America association agreement, 2 February 2017 (copy with the author). 113 E.g. as part of the meeting of all DAGs (EU, Peru and Colombia) and the Sub-Committee on 7th December 2016 in Brussels, video recording of the meetings, see http://trade.ec.europa.eu/doclib/ events/index.cfm?id=1582. Accesses 14 March 2019. 109

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tioning mechanism for such violations. Civil society is an effective monitoring mechanism and the SD chapter provides the tools for the EU to react to such violations. On the other hand, these examples show the limits of the current DAG/CSM concept. In cases of clear SD chapter breaches, no follow up was initiated. The dispute resolution mechanism is not automatically triggered and other response or accountability procedures are missing in the agreements. At most, some agreements require the parties or the SD committees to ‘consider’ the input received (e.g. FTA Colombia-Peru, Art. 280.2.7). Even cases in which SD provisions have been evidently breached on a massive scale, this has as of yet not triggered formal proceedings. For instance, after a wave of harassment, imprisonment and forced dissolution of trade unionists by South Korea in violation of the freedom of association, which were confirmed by the UN Working Group on Business and Human Rights114 and the UN Special Rapporteur on the Freedom of Association,115 the chairs of the EU DAG under the FTA Korea wrote a public letter to the Trade Commissioner Malmström asking her to initiate formal consultation under Art. 13.15 of the FTA.116 According to Malmström, these issues should primarily be discussed with South Korea on the basis of dialogue and cooperation under the framework of the SD chapter, which will not entail civil society involvement.117 She refers to the National Contact Points established under the OECD guidelines for multinational enterprises for complaints from civil society. This view has also been expressed by the SD Committee in the DAG meeting under the FTA Peru-Colombia.118 These examples illustrate that the general discrepancy between a cooperative approach for human rights issues and hard law for trade and investment issues continues to shape the understanding of the SD chapters. Such incidents can further be interpreted as a reflection of a concept of civil society involvement that is in fact undermining empowerment. Orbie et al. point out that constructing CSMs as a one-way street, i.e. as means for the parties to “sell” the trade agreement, bears the risk of consultation fatigue. Such examples support the assumption that these mechanisms are used as a strategic tool for silencing Statement at the end of the visit to the Republic of Korea by the United Nations Working Group on Business and Human Rights, 1 June 2016, see, http://www.ohchr.org/EN/NewsEvents/Pages/ DisplayNews.aspx?NewsID=20038&LangID=E. Accessed 14 March 2019. 115 Report of the Special Rapporteur on the rights to freedom of peaceful assembly and of association on his mission to the Republic of Korea, 15 June 2016, A/HRC/32/36/Add.2. 116 Letter by Georgi Stoev (Chair), Thomas Jenkins (Vice Chair) and Gaelle Dusepulchre (Vice Chair of the EU DAG under the FTA Korea) to Cecilia Malmström, 16 December 2016 (copy with the author). 117 Letter by Cecilia Malmström to Georgi Stoev (Chair), Thomas Jenkins (Vice Chair) and Gaelle Dusepulchre (Vice Chair of the EU DAG under the FTA Korea), 7 February 2017, http://ec.europa. eu/carol/index.cfm?fuseaction=download&documentId=090166e5b0202eda&title=CM_ signed%20-%20Reply%20EU-Korea%20FTA%20-%20EU%20Domestic%20Advisory%20 Groups%20letter.pdf. Accessed 14 March 2019. 118 Meeting of all DAGs (EU, Peru and Colombia) and the Sub-Committee on 7th December 2016 in Brussels video recording of the meetings, see http://trade.ec.europa.eu/doclib/events/ index.cfm?id=1582. Accessed 14 March 2019. 114

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o pposition by channelling it into a controlled venue or making them co-responsible for ensuring human rights compliance of trade and investment policies.119 In that case, it is more advisable for CSOs to remain outside these structures.120 Orbie, Martens, Oehri and Van den Putte conducted a systemic survey that goes beyond the anecdotal evidence presented here in order to find out whether participating NGOs participating in EU DAGs and CSM run the risk of co-optation. In their survey, while pointing to the fact that it was conducted at an early stage of experience with DAGs and CSMs, they did not find any evidence of participants having changed or restricted their agendas. However, NGOs are aware of the risks of co-optation and partly felt confronted with the insider-outsider-dilemma.121 Another survey also confirms that participating NGOs are aware of the risks that their participation might be used to legitimize trade policies they oppose.122 According to Karin Ulmer, civil society participants perceive the lack of enforceability as a major restricting factor for exerting actual influence. Yet, at the same time, they acknowledge that public and peer pressure may induce accountability and that the mere fact that conflictual issues are put on the table already bears potential for empowerment.123 In a similar vein, also James Harrison et. al. found initial evidence in the context of the FTA Korea supporting the assumption that the absence of any link to the dispute resolution mechanism will deprive the DAGs and CSMs of their effectiveness.124 They point out that especially in comparison with US FTAs that include dispute resolution coverage over labor rights, the lack of enforcement is a general weakness of EU SD chapters.125 Next to the restricted influence, also the substantive scope of the SD chapter is limiting the potential CSMs and DAGs. Occasionally, NGOs managed to strategically base broader human rights concerns on labour and environment provisions, e.g. by framing the criminalization of social protests and the insufficient combat of impunity for crimes against social activists as a breach of environmental protection.126 In other cases, the separation of issues was strictly enforced by the governmental representatives, despite fundamental human rights such as the Universal Declaration of Human Rights (UDHR) being declared as essential elements of the agreement. However, these incidents show that CSOs have the capabilities and the potential—if given a voice—to contribute substantively to effective monitoring of human rights compliance, i.e. in this context compliance with the essential-elements clause. Orbie et al. (2016), pp. 28 and 29. Ibid., p. 29. 121 Orbie et al. (2017), p. 10. 122 Ulmer (2015), p. 321. 123 Ibid., p. 321. 124 Campling et al. (2016), pp. 370 and 371. 125 Ibid., pp. 370 and 371. 126 Meeting of all DAGs (EU, Peru and Colombia) and the Sub-Committee and open CSM on 7th/8th December 2016 in Brussels video recording of the meetings, http://trade.ec.europa.eu/ doclib/events/index.cfm?id=1582. Accessed 14 March 2019. 119 120

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Concrete benchmarks are helpful to substantiate the broad provisions in the SD chapter. NGOs have, for instance, relied on the EP Resolution 2012/2628 to highlight Colombia’s shortcomings on SD matters and thereby responded to the calls of the EP for civil society engagement in that Resolution.127 This example shows the potential of DAGs to work as an effective monitoring mechanism for other EU instruments. At the same time, the CSOs that raised these issues may also expect the EU to enforce those instruments. In the absence of any reactions, frustration and consultation fatigue is likely to undermine the success of these mechanisms. Technology can be used to increase the outreach and inclusion of less mobile groups of society at lower costs. This has already proven to be successful in the DAGs meeting under the FTA Colombia-Peru, when civil society representatives used a web live stream and email connection to directly forward questions and complaints from the broader public. Further, DAGs and CSMs can provide a platform for international cooperation of civil society, which is useful as many concerns are shared. In the DAGs meeting under the FTA Colombia-Peru, for example, the European Trade Union Confederation gave concrete examples of human rights violations committed by EU based companies and pressured present EU representatives to outline the responses undertaken. Cooperation between the different national DAGs happens also outside the meetings and in more informal structures. However, NGOs have stressed that this is also due to a lack of institutionalization, which remains necessary.128

7.4 Summary of the Criticism and Necessary Reforms This part evaluates the potential and the shortcomings of the current design, practice and concepts in light of the legal requirements elaborated above.

7.4.1 Conceptual Limitations and Substantive Scope In order to meet the continuous duty to assess human rights explicitly, these mechanisms should cover human rights more broadly and pay particular attention to those human rights that were identified in the ex ante HRIA. The selection of participants

In the EP’s Resolution 2012/2628, adopted on 13 June 2012, the EP makes its consent to the FTA Colombia-Peru conditional upon the commitment of both countries to design and fulfil a concrete roadmap on human, environmental and labor rights, paras. 5 and 15. 128 See, e.g., Joint declaration DAGs-to-DAGs (EU, Peru and Colombia) and the Sub-Committee on 7th December 2016 in Brussels, see https://www.eesc.europa.eu/en/agenda/our-events/ events/2nd-joint-meeting-eu-colombia-and-peru-domestic-advisory-groups-and-open-session/ documents. Accessed 14 March 2019. 127

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should be tailored accordingly, to ensure that the groups identified as being at risk are represented. However, as of yet, these mechanisms follow a strict division between those rights that are perceived as part of sustainable development and those that are not. Other human rights that are likely to be negatively affected by trade and investment policies are being excluded from debates. This means on one hand that these instruments are not fit to function as an instrument for human rights assessment or for human rights realization. In the absence of any other effective human rights instrument, the EU would be in breach of the duty to respect. Further, it is worth discussing whether such a division is at all legitimate. The duty to promote could be interpreted as requiring a coherent human rights approach that does not allow for a selection of some aspects while disregarding others. Being coherent with the overall human rights framework of the EU, which is based on the principles of universality, indivisibility and non-discrimination, prohibits an exclusion of certain rights and right-holders without further justification. This approach is especially questionable when those other rights have been identified as being at risk in ex ante assessments. Further, when analysing these mechanisms as purely a SD instrument the substantive scope is too limited. Many references are vague, limited to encouraging the adoption and implementation of basic international convention. In terms of labour rights, only the ILO core labour standards are fundamental and recurring components. The SIA on the IPA with Myanmar concluded in its draft final report that the inclusion of human rights into the SD chapter is necessary, among others to comply with the indivisibility of human rights.129 Another critical aspect on the conceptual level is that, as of yet, these civil society mechanisms are not perceived as a response to constitutional requirements. First, the civil society mechanism seems to be understood as mainly a means for ‘consolidating the support of public opinion of trade liberalization’130 and is reduced to its function as an instrument for better policy making.131 The latter might be explained by the original rationale of similar mechanisms for consultation which were mainly aimed at enabling better factually-based decision making rather than at ensuring the inclusion of all interests.132 Second, the claims and complaints brought forward in these civil society mechanisms are ultimately diverted to voluntary cooperative mechanisms such as human rights dialogues. Therefore, the civil society

See, Position paper by FIDH and ALTSEAN Burma, Point 8(a) referring to the EU-Myanmar/ Burma Investment Protection Agreement (IPA) Comments on Sustainability Impact Assessment’s Draft final Report from April 2016, p. 3, which is not public anymore. A weaker version of this is found in the final report under recommendation 1.4 (‘Provisions on sustainable development, including labour and human rights, should not take a selective approach but rather encompass all related issues’). The inconsistencies between the draft and the final report and the absence of any explanation is discussed in the previous chapter, see Chap. 6, Sect. 6.4.4. 130 EESC, Civil society in action – Monitoring sustainable development and wider FTA implementation: Lessons to be drawn from the EU experience, 2012, p. 3. 131 Orbie et al. (2016), pp. 35 and 48. 132 Mendes (2011), p. 11. 129

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mechanisms in their current form are not able to overcome the shortcomings of the traditional trade-related human rights instruments.133

7.4.2 Independence In order to function as a meaningful mechanism for empowerment, the institutional set up for civil society involvement should ensure independence from their home states for marginalized groups being able to circumvent oppressing governments. While cooperation and meetings with government officials are also essential, separate fora not linked to any governmental agency should be established. Several examples and claims by civil society show that this is not the case in the current set-up. The prescriptions in EU trade and investment agreements in this regard are too weak and enforcement is basically absent. If independence is not ensured, the DAGs and CSMs are not a reliable source for human rights assessment or the monitoring of the SD chapter, nor a tool for empowerment.

7.4.3 Guaranteeing Inclusiveness It is essential that access for marginalized interests is guaranteed. Additionally, to make sure that their interests can be expressed freely, DAGs should be a safe space, protected from control and pressure exerted by governments or powerful business players. A replication of other domestic mechanisms and their inherent power structures or the direct use of already existing mechanisms is therefore not a promising remedy. As seen in the case of the SIA on Myanmar, the groups that are likely to be excluded can often be clearly identified. DAGs and CSMs in the SD chapters could therefore be specifically tailored to cover such groups. So far, the set up as established by the agreements relies on general terms that are used in every agreement with only slight variations. The compositions and the selection procedure are left to the parties and are often not transparent. In cases of clear breaches, compliance is not enforced. In the EU, the relative overrepresentation of business interests questions the balanced representation. It remains to be seen whether underrepresented interests will in practice be capable (financially and logistically) and willing (without taking to many risks) to raise their concerns in the open CSMs. The EU provides financial subsidies but lacks a systematical approach for safeguarding at-risk human rights representatives. However, since the main access to civil society participation is the one through established CSO, non-organized interests such as informal workers, farmers in rural areas or oppressed minorities are likely to be neglected.

133

See, detailed discussion in Chap. 2, Sect. 2.4.1.1.

7.4 Summary of the Criticism and Necessary Reforms

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7.4.4 Room for True Contestation The studies conducted so far come to diverging conclusions when assessing the room and potential for fundamental criticisms in these participatory mechanisms. The comprehensive investigation conducted by Orbie et al. does not deliver any concrete evidence of actual co-optation. However, the room for contestation and alternative discourse seems theoretically limited. This is first because of the currently prevailing perception of the function of DAGs/CSMs as a policy advisory or support generating body. Second, the substantive law as well as the procedures, including the limited influence on governmental decision making and the lack of any institutionalized accountability mechanisms in SD chapters leave little room for articulated alternative policies to have a meaningful effect. If DAGs and CSMs are mainly understood and treated as a legitimizing tool for trade and investment policies, they cannot at the same time function as an instrument for human rights realization through meaningful participation and empowerment. For both objectives—using DAGs/CSMs as an assessment tool as well as a human rights instrument—it is therefore essential that the members of the DAGs as well as of other CSOs can effectively raise fundamental concerns and are not forced to formulate their concerns in constructive and collaborative terms.

7.4.5 R eal Influence and the Lack of Any Institutionalized Response Mechanisms Apart from the indirect role both civil society mechanisms may play in the SD dispute resolution, their influence on the substance of the agreement is not formalized. For empowerment and in order not to frustrate participation, it is essential to institutionalize response mechanisms, e.g. by stipulating mandatory dispute resolution mechanisms or an obligation of the governments to respond, issue action plans and justify action as well as inaction. The same is true, if these mechanisms should function as a complementary complaint mechanism. The transparency provisions or non-derogation clauses of the SD chapter could in theory provide a means to support the implementation of participatory rights at domestic level. If participation like informing indigenous communities to realize the right to FPIC is neglected, the transparency and non-derogation provisions in the SD chapter are a legal base for raising these failures during CSMs. Such claims however should be investigated further and clear breaches should either be sanctioned or trigger problem-solving procedures. One could imagine that concrete issues linked to certain investors could be brought up. If problems like persistent corporate human rights abuses or mass scale human rights violation on grounds of stabilization clauses are brought to the attention of the SD Committee, the latter could use its influence to adjust the interpretation of investor protection provisions accordingly. However, these links are not yet enshrined in every agreement and remain below what is possible. Concrete

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claims against certain investors could, for example, also be brought to the attention of the decision-making bodies under ISDS by obliging the adjudicators to pay due attention to the declarations issued by the CSMs and DAGs, while ensuring the investor’s right to defence. These mechanisms should not aim to substitute legal remedies or domestic complaint mechanisms, but they can function complementary to those. If the participatory mechanisms remain vested in legal structures that lead to restricted influence, limited substantive scope, and a lack of accountability, these mechanisms, according to the legal requirements presented here, would not qualify as a tool for human rights realization.

7.5 Conclusion Some examples have shown that DAGs and CSMs could have the potential to write venues for empowerment and contestation into international investment law (IIL). In light of the difficulties with regaining legislative control over the development of autonomous principles and structures within IIL and the lack of means to articulate human rights claims procedurally and substantively by affected human rights holders, establishing alternative venues for making other interests visible might bear the potential for countering the current imbalance of rights protection and the exclusion of locally marginalized interests. Reforms are necessary but also feasible. While reforming the EU approach towards HRIAs can be done by the EU alone, the establishment of CSMs and DAGs as proposed here, i.e. in an institutionalized form as part of an international agreement, has to be achieved at bilateral or multilateral level. However, specific circumstances of each state can be accommodated, while some fundamental criteria will need to be prescribed by the investment agreement, e.g. the independence from the domestic government and guaranteed inclusion of marginalized groups of the population. In addition, linking the two mechanisms would enable involvement and influence by civil society from the negotiation to the implementation phase. This chapter also demonstrated that the strategies of participation and empowerment are grounded in EU law. The EU constitutional framework on one hand provides the legal base (the ‘can’) for establishing such mechanisms and on the other dictates (the ‘must’)—at the very least—to put the need for a meaningful participation and empowerment of previously disregarded human rights holders on the agenda. For the latter, the analysed mechanism could present a valuable contribution if substantial reforms are being undertaken. This chapter outlined the parameters flowing from the duty to assess, the duty to promote and other human and fundamental rights. It demonstrated that the EU human rights framework can be pinned down into concrete requirements. The EU human rights framework in conjunction with other EU constitutional principles and substantive fundamental rights provides clear benchmarks for assessing the design and the operation of such mechanisms and for steering them towards what is

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concretely needed to remedy the regulatory tilt perpetuated by the current EU approach to international investment regulation. For DAGs and CSMs being turned into an instrument of human rights realization in the context of the international investment regime, at a minimum, three aspects need to change. First, a shift of perception is necessary, which needs to be manifested in corresponding reforms of the rules and the practice. These mechanisms should be recognized and conceptualized as a means for complying with the outlined EU human rights framework instead of being perceived primarily as policymaking tools for information gathering and for generating more public support for EU trade and investment policies. Second, as with the HRIA, the ‘status’ in the policy monitoring phase must be institutionalized and linked to legal consequences such as the requirement of proper responses by duty bearers and of follow up reports on the implementation. Third, outreach to those individuals and communities that are likely to be affected and have traditionally been disregarded must be effectively guaranteed; otherwise it seems likely that the composition of such meetings is ultimately only reflecting the power distribution existent in investment law making and arbitration.

References Campling L, Harrison J, Richardson B, Smith A (2016) Can labour provisions work beyond the border? Evaluating the effects of EU free trade agreements. Int Labour Rev 155:357–382. https://doi.org/10.1111/j.1564-913X.2015.00037.x Craig P (2014) Article 41 – Right to Good Administration. In: Peers S, Hervey TK, Kenner J, Ward A (eds) The EU Charter of Fundamental Rights, a commentary. Hart, Oxford Ferri M (2015) The European Union in the International Labour Organization, coordination between the European Union and its Member States. In: Kaddous C (ed) The European Union in international organisations and global governance: recent developments. Hart, Oxford Fraser N (2003) Rethinking the public sphere: a contribution to the critique of actually existing democracy. In: Elliott CM (ed) Civil society and democracy: a reader. Oxford University Press, New York/New Delhi Hopewell K (2015) Multilateral trade governance as social field: global civil society and the WTO. Rev Int Polit Econ 22:1128–1158. https://doi.org/10.1080/09692290.2015.1066696 Martens D, Orbie J, Van den Putte L, Williams Y (2016) Civil society meetings in EU trade agreements, recommendations and lessons for EPAs. Brief Note ECDPM Mendes J (2011) Participation and the role of law after Lisbon: a legal view on Article 11 TEU. Common Mark Law Rev 48:1849–1878 Meunier S (2003) Trade policy and political legitimacy in the European Union. Comp Eur Polit 1:67–90 Montoute A (2011) Civil society participation in EPA implementation. Discuss Pap 119 ECDPM Narayan D (2002) Empowerment and poverty reduction – a sourcebook. World Bank Group Publications, Washington, DC Orbie J, Tortell LA (2009) The European Union and the social dimension of globalization: how the EU influences the world. Routledge, Abingdon Orbie J, Martens D, Van den Putte L (2016) Civil Society Meetings in European Union Trade Agreements: features, purposes, and evaluation. CLEER Pap 20163

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Orbie J, Martens D, Oehri M, den Putte LV (2017) Promoting sustainable development or legitimising free trade? Civil society mechanisms in EU trade agreements. Third World Themat TWQ J 1:1–21. https://doi.org/10.1080/23802014.2016.1294032 Reuters at the UN (2017) UN report details brutal Myanmar effort to drive out half a million Rohingya. In: The Guardian. https://www.theguardian.com/world/2017/oct/11/rohingya-refugees-myanmar-aung-san-suu-kyi-un-report. Accessed 14 Mar 2019 Seck SL (2008) Unilateral home state regulation: imperialism or tool for subaltern resistance. Osgoode Hall Law J 46:565 Ulmer K (2015) Trade embedded development models. Int J Comp Labour Law Ind Relat 31:305–330 van der Burgt N (2013) The contribution of international fisheries law to human development. Nijhoff, Leiden Walker S (2009) The future of human rights impact assessments of trade agreements. Intersentia, Cambridge

Chapter 8

Concluding Remarks on the EU Obligation to Empower Neglected Interests and on Ways Forward to More Inclusive Global Economic Regulation

Abstract The conclusion reminds of the motivation for this research and summarizes the findings of each chapter and of the book. It also clarifies the meaning of the finding in context of past and future EU policies as well as in context of the broader theoretical literature. The conclusion therefore suggests tangible policies, hopes to be a motivation for further research and demands fundamental rethinking and imaginative exploration for both policy makers and academia to overcome the power imbalances in the international investment regime. This book aims to do two things. First, it aims to demonstrate that the explicit mandate enshrined in the EU’s external constitution to protect and to promote human rights globally entails legal consequences for EU foreign policy making and implementation. On the one hand, these legal consequences are those that are expanding the ‘can’—in other words the legal possibilities to design and implement human rights strategies that are less fettered by competence fragmentation. These constitutional conditions should, so this book argues, give an impetus for rethinking traditional and much criticized concepts that mainly focused on how the EU can condition other states to comply with human rights standards through trade instead of reviewing the EU’s own action systematically as well as instead of exploring other ways for the EU to directly contribute to human rights realization of third country nationals. On the other hand, the external human rights objective and principle clarifies the ‘must’, i.e. the constraints and obligations imposed on the EU foreign policy maker. The external human rights mandate adds to the must in that it anchors the general EU human rights framework as well as other EU constitutional principles firmly within external policy making and implementation. In relation to other EU procedural principles it provides substantive content and in relation to the general human rights framework, including the EU Charter of Fundamental Rights, it clearly instructs its application to foreign policies. These characteristics of the external human rights mandate expand the focus from human rights responsibility requiring established causality for concrete violations to cover obligations at the policy making and implementation stage in abtracto. © Springer Nature Switzerland AG 2019 V. Kube, EU Human Rights, International Investment Law and Participation, Interdisciplinary Studies in Human Rights 4, https://doi.org/10.1007/978-3-030-20607-9_8

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Those obligations should entail setting up sustainable governance structures and institutions that assess human rights compliance and advice policies accordingly. Second, this book aims to tackle a concrete challenge. That is to critically assess and respond to the continuation and expansion of international investment law, a global legal regime that is perceived as unjust by many. The concrete challenge includes exploring and identifying the possibilities of the EU when entering this regime that, although formally depending on the will of the treaty maker, over decades developed autonomously into a regime that seems to have established an own identity and preserved its own dynamics. By so doing, this book applies the conceptual framework to one concrete case, which emerges from a specific conjunction. The latter consists first of the fact that the EU is entering the regime as a new actor, which requires concluding new agreements that may be influential for the international investment regime as a whole. Second, it consists of the unique constitutional framework of the EU that should inform such exercise including the relatively recent and not much explored innovations such as the external human rights mandate. Third, it consists of the significant public discontent which made engaging with reforms unavoidable. This conjunction allows for observing the EU’s action in an era in which fundamental repositioning is possible and needed. It also allows for examining the perception of the external human rights mandate and its implementation, in other words whether the legal capabilities are being explored and exhausted, whether the EU falls back into path-dependency or whether it sets out to attempt more courageous innovations—in other words, whether the EU is part of the problem or whether it will become part of the solution. The concrete case of the EU entering the international investment scene is also a fine example for examining how the peculiar position of the EU stemming from vertical and horizontal competence delineations shapes the content of the investment policy. As the discussion on Opinion 2/15 has shown, EU fundamental rights have also been used as a basis for behind-the-border regulation. The special place that fundamental rights enjoy within the competence divisions makes compliance with them not only a compatibility issue but also an organizational principle. Next to explaining the different approach to the external human rights objective taken by this book in comparison to the work of previous scholarship, Chap. 2 outlined the consequences for the competence delineation as well as the obligations that stem from the EU external human rights framework. These are the obligation to respect which requires assessment and corresponding adjustment of policies and the duty to promote human rights externally. The latter comprises a prohibition of regression, a duty to be consistent and to actually contribute to the advancement of human rights whenever the EU decides to act in the pursuance of the latter. In the given context of the EU entering the international investment regime that translates into an obligation of continuous assessment and adjustment of policies, which is a legal obligation. Further, the EU could realize its duty to promote by engaging in the empowerment of rights-holders. The latter is only one way of realizing the EU’s obligation, whether it turns into an obligation depends on the concrete circumstances. Neither obligations nor judicial review is excluded merely because of the fact that a violation occurs extraterritorially. The EU Court has rightly required EU

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external acts to be in compliance with EU law. Further, international human rights jurisprudence and doctrine is increasingly developing methods and concepts for coming to terms with doctrinal and practical hurdles of extraterritorial human rights obligations. The EU’s mandate to promote human rights protection and to contribute to the development of international law requires the EU to refrain from closing the door to such developments. Chapter 3 explained to what extent the EU enjoys the competence to regulate the conventional scope of international investment relations and to what extent EU law will govern the future investment relations between third countries, the EU and its Member States. The majority of substantive provisions fall under EU’s exclusive common commercial policy (CCP). For those aspects, portfolio admission and protection, that fall under shared competence and those that fall under retained Member States’ competence, such as investor-state dispute settlement (ISDS), the chapter discusses the policy options. One important observation is that the fundamental principles of EU human rights and fundamental rights protection also govern Member States’ action under shared and retained competence. That is because on one hand they constitute fundamental principles of EU law and therefore apply directly to Member State action and on the other hand because they may apply indirectly by virtue of the duty of sincere cooperation. When investment policies including those human rights measures that are needed to make investment regulation human rights compliant are being formed at EU level, the duty of sincere cooperation would prevent the Member States from undermining those through diverging autonomous action. Another important observation is that the proposals made in Part III for remedying the ignorance towards human rights as they are designed now fall under exclusive EU competence. This book argues that this would also be the case in their reformed versions. The proposed mechanisms might require subsequent adjustment and expansions according to the human rights tensions they will bring to the fore which then could exceed EU exclusive competence. However, depending on the policy option chosen and the degree of ‘mixity’, the substantive instructions informed by the EU human rights framework affect measures beyond the confines of EU exclusive competence. In any case, competence fragmentation should not be a barrier for adopting measures that are necessary to make EU investment policy human rights compliant. If this is cannot be achieved, the EU investment policy makers must refrain from taking the respective action. Chapter 4 was concerned with understanding the substance, the procedures and the dynamics of the current international investment regime in detail. This analysis brought to the fore that the regime as of yet is not equipped to adequately respond to human rights claims and to take the regime’s impacts on human rights duly into account. Due to its effective enforcement mechanism entailing the risk of severe financial sanctions, a lack of transparency and high thresholds for treaty makers to regain legislative control, the investment regime is in effect often overriding human rights protection. This privilege for certain sectoral interests at the costs of other human rights-holders is however increasingly losing public support and lacks democratic as well as legal legitimacy. The texts of investment agreements amongst others justify investment protection with its contribution to economic and social

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development of the host state. Moreover, from an EU law perspective, liberalization of trade and investment must be in compliance with human rights. A systematic ignorance towards potential negative impacts on human rights is not in line with the constitutional choices of the EU. Chapter 5 placed the emerging EU approach within the status-quo of substantive as well as procedural international investment law and within the alternatives to mitigate human rights tension proposed by literature, other policy makers or as pursued by other actors. This investigation brought to the fore that the EU approach includes some marginal improvement on substantive level and more considerable reforms on procedural level. On a substantive level, a more robust protection of the right to regulate and potential links to the Trade and Sustainable Development chapter (SD chapter) are the major improvements from a human rights perspective. On a procedural level, transparency was increased, the access for amicus curiae facilitated and increased efforts were undertaken to discipline the investment arbitrators and to ensure impartiality and oversight. However, in many regards the EU approach falls behind alternative proposals, is inconsistent and more importantly fails to tackle the ignorance and the non-receptiveness of the regime towards human rights interests in a comprehensive and systematic manner. Human rights were not giving notable increased textual legitimacy and the reforms include only little guidance on how to balance investor protection with broader concepts such as public policy. Since textual variations have been much overlooked by arbitrators in the past, there is a need for increased clarity if roll-backs are intended. These shortcomings suggest that awareness of the structural problems is still lacking and that the possibilities for alternatives and remedies have not been sufficiently explored. The EU therefore has failed to align its approach with the values, objectives and principles of its constitution. Chapters 6 and 7 demonstrated that strategies for remedy are however available and embedded in EU law. Both chapters outlined the precise requirements that follow from EU law, precisely from the EU external human rights framework, constitutional principles of process and international human rights law. Thereby this part demonstrated that the EU external human rights commitment can be pinned down into concrete requirements and legal obligations. The chapters argued that the two mechanisms analyzed have the potential to contribute to remedying the structural inequality of the investment regime. Both mechanisms are based on the two strategies of comprehensive assessment and of enabling equal participation. These strategies seem particularly relevant in the investment contexts. Because of the complexity of interactions, one has to look beyond the mere redrafting of single provisions. Further, many interests remain ignored from the outset. Domestic patterns of exclusion and discrimination are being perpetuated when placing domestic regimes under the scrutiny of a powerful global regulatory system with only exclusionary access to its making and its contestations. The evidence of the likeliness for international investment regulation deepening such inequality and for European investors to become complicit in such ongoing human rights violations has been well documented. It is therefore essential to make heard the voices of those that are being deeply affected by the regime but have been previously disregarded.

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The practice of human rights impact assessments (HRIAs), as shown in the course of this book, is doing both,—enabling comprehensive assessment as well as participation and empowerment. It is further anchored in EU law and an abstract legal obligation. Further, also civil society participation mechanisms established by the SD chapter such as the civil society meetings (CSMs) and domestic advisory groups (DAGs) can substantially contribute to the strategies of continuous assessment and participation. The latter is necessary to re-evaluate whether the expected results as shown by a HRIA materialize, to enable civil society to substantiate or alter their claims after having become fully aware of the precise content of the agreements, and to bring to the attention of the policy makers unforeseeable consequences, previously concealed relations or implementation failures. Some aspects of these civil society mechanisms can be based on concrete obligations. For instance, in case some groups and rights have been indicated in the ex ante assessments as being particularly at risk, the inclusion of such rights-holders in ex post re-assessments is required by the obligation to assess. Some aspects of these mechanisms turn into obligations depending on the factual and legal contexts. If the EU explicitly pursues the promotion of human rights with these instruments (also if only for certain human rights), those mechanisms must be in line with procedural human rights law as well as with the fundamental pillars of the EU human rights framework (such as non-discrimination, universality and indivisibility). These mechanisms should therefore be geared towards the empowerment of the rights-holders. Both mechanisms are already established mechanisms within trade policies and only since recently start to cover investment policies. However, major reforms and a conceptual change are necessary. First, these mechanisms should be recognized and conceptualized as means for complying with the outlined EU human rights framework. Second, both the HRIAs and the civil society mechanisms must include an accountability and response mechanisms. Ideally their influence on decision making should be institutionalized. Third, the inclusion of those individuals and communities that are likely to be affected but traditionally disregarded in international investment law and domestically must be pursued. Such mechanisms and strategies could provide a general blueprint for what it means to promote human rights globally while preserving the free choice of third states’ populations. That is through empowerment, emancipation, and rather on a procedural level with the aim to enable in particular marginalized rights-holder to participate in the making, implementation and the contestation of global economic rules. The main contribution of this book in this concrete context is therefore to clearly outline the legal underpinnings and demonstrate which parts are continuously obligatory and which parts are optional but may turn obligatory in certain situations based on EU constitutional principles and the external human rights mandate. By way of example, this book has shown how the EU human rights objective and principles of ‘protect and promote’ as abstract principles can be operationalized in terms of specific duties and policy instruments and how they can be legally measured. The mechanisms proposed here constitute sustainable mechanisms that do not depend

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on the precise direction or form that future EU investment policy may take and they might be replicated for other fields of international economic governance. Future research could explore these strategies as well as these mechanisms more deeply. This could be done firstly by empirical research on the effects of the two mechanisms on the grounds, on legislative changes in the host states and on whether dialogue with governments and with foreign business actors increased. Such research should aim to grasp the experiences of the participants and who the participants are and represent. The research for this book included a few semi-structured interviews with participants from the EU side that described positive as well as negative experiences. Future empirical research should expand in terms of numbers and include participants from other states as well as non-participating affected groups and individuals. Further, comparative research into different empowerment mechanisms could be useful. For instance, the US free trade agreements (FTAs) include dispute resolution mechanisms which allow for bringing complaints on grounds of labor rights violations, which have been successful and have been partly used in the discussion during joint DAGs meetings between the EU and the trade partner.1 In addition, comparative research could help to understand these strategies as well as their failures when compared with the theory of empowerment and participation. The Capabilities Approach by Marta Nussbaum and Amartya Sen could provide a useful theoretical basis.2 It became apparent during the research that next to the Capabilities Approach, these proposals for participation and empowerment could benefit from a discourse with the arguments brought forward by Third World Approaches to International Law (TWAIL) as well as by Global Administrative Law (GAL) scholarship. Parts of the TWAIL literature dismiss any emancipatory potential of unilateral home state regulation as well as of global institutions for Third World populations, while others have also suggested ways to overcome the alleged domination inherent in global governance structures if those that are affected by global governance structures will be enabled to reclaim democratic control.3 In the GAL literature, the potential of governance structures that aim to include those interests that are usually disregarded has been substantively discussed and based on comparative analyses of different global regimes.4 This book provides the legal underpinnings from an EU constitutional law perspective for such further studies and the legal tool box for policy makers to build and measure alternative venues linked to international investment law and in which different power balances are possible. It also may contribute to legal arguments that can be employed by those directly struggling for access to the investment regime as well as by EU citizens in order to hold their policy makers accountable to constitutional promises.

Campling et al. (2016), pp. 370, 371. Sen (2008, 1999), Nussbaum (2011, 2017). 3 For a juxtaposition of both strands, see Seck (2008). 4 Stewart (2014), p. 12. 1 2

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References Campling L, Harrison J, Richardson B, Smith A (2016) Can labour provisions work beyond the border? Evaluating the effects of EU free trade agreements. Int Labour Rev 155:357–382. https://doi.org/10.1111/j.1564-913X.2015.00037.x Nussbaum MC (2011) Creating capabilities: the human development approach. Belknap Press of Harvard University Press, Cambridge Nussbaum MC (2017) Human capabilities, female human beings. In: Pogge T, Moellendorf D (eds) Global justice, seminal essays, 1st edn. Paragon House, St Paul, pp 495–552 Seck SL (2008) Unilateral home state regulation: imperialism or tool for subaltern resistance. Osgoode Hall Law J 46:565 Sen A (1999) Development as freedom. Oxford University Press, Oxford Sen A (2008) The concept of development. In: Pogge T, Horton K (eds) Global ethics, seminal essays. Paragon House, St Paul, pp 157–180 Stewart RB (2014) Remedying disregard in global regulatory governance: accountability, participation, and responsiveness. Am J Int Law 108:211–270