The International Court System and the Autonomy of the EU Legal Order / submitted by Sebastian Studirach

(1)

JOHANNES KEPLER UNIVERSITY LINZ Altenberger Str. 69 4040 Linz, Austria www.jku.at DVR 0093696 Submitted by Sebastian Studirach Submitted at Institute of Public International Law, Air Law and International Relations

Supervisor

A. Univ.-Prof. Dr. Sigmar Stadlmeier LL.M. (London)

Month Year 08/2018

The Investment Court

System and the

Autonomy of the EU

Legal Order

Diploma Thesis

to obtain the academic degree of

Magister der Rechtswissenschaften

in the Diploma Program

(2)

STATUTORY DECLARATION

I hereby declare that the thesis submitted is my own unaided work, that I have not used other than the sources indicated, and that all direct and indirect sources are acknowledged as references.

This printed thesis is identical with the electronic version submitted. Linz, 24 August 2018

(3)

1. Introduction

Liberalisation and proliferation of international trade and investment has long been an instrument to enhance transnational relationships. To function international economic relationships are dependent on the rule of law guaranteed by impartial forms and forums of dispute resolution. To that end arbitration was perceived to be a neutral way to resolve disputes as it provided means to exclude national jurisdictions.

But exactly this exclusion of the national judicial systems has been leading to increasing criticism of the arbitration process. This has led to an attempt to reform the system and to regain the trust of the public. A step in this direction is the introduction of a standing arbitration tribunal in the form of a so-called Investment Court System (ICS) to replace ad-hoc arbitration along with various other adjustments in the Investment Chapter of the Comprehensive Economic and Trade Agreement (CETA).

To successfully establish the ICS the drafters of CETA had to keep in mind the relationship of European and International law and especially the concept of the autonomy of EU law in order for CETA to be adopted. In this thesis the traditional system of international investment arbitration and the newly introduced International Court System will be compared. Moreover, the concept of the autonomy of EU law and its implications on international dispute settlement systems will be looked at. Finally, an outlook on the amendments in the investor-state dispute settlement (ISDS) chapter of CETA and whether they were sufficient to be deemed compatible with the EU treaties by the Court of Justice of the European Union (CJEU) will be made.

(5)

2. The International Court System

At the beginning of international investment law disputes arising from investments by foreigners were usually settled between the host state and the investor’s home state via diplomatic protection. Whether such protection was granted was entirely at the discretion of the home state. Investors could only resort to domestic courts which were often seen as biased and lacking the necessary expertise to adjudicate investment disputes. Additionally, they were required to apply national law, which was often the source of the conceived ill treatment of the investor.1

Therefore, investors were looking for direct access to international dispute settlement. From the late 1960ies investment treaties allowing for direct arbitration between host states and investors, so called Investor-State dispute settlement emerged.2_{Today arbitration is an established,}

accepted and often used form of Investor State Dispute Settlement.3

Investment arbitration has long been subject to criticism. It was seen as lacking democratic legitimacy, as well as having an effect of regulatory chill on states. Critics argued that investment arbitration has led to a pricey parallel system of justice only accessible to multinationals. According to them investment arbitration in its current form is a non-transparent, time consuming and cost-intensive way of solving disputes.4

Arbitrators are seen as an ‘elite group’ favouring investors and interpreting treaty provisions in favour of them. This group is interested in expanding a non-transparent system in order to profit from it financially. The key goal is to bring a dispute outside the national judicial system and to then profit from a non-transparent arbitration process.5

According to the theory of regulatory chill states may be discouraged from introducing legitimate regulatory measures out of fear of investment arbitration. Commonly distinguished categories are anticipatory chill, specific response chill and precedential chill. Anticipatory chill describes a situation in which law makers take possible investment arbitration into account before they begin drafting a bill. This is thought to be the most serious category as it potentially impacts all areas which could provoke arbitration. Specific response and precedential chill on the contrast are seen as reactions to a specific threat of arbitration.6

1_{Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Oxford University Press 2008)}

218–219

2_{Lluis Paradell Andrew Newcombe, Law and Practise of invesment treaties (Kluwer Law International 2009) 44–45} 3_{UNCTAD, ‘UNCTAD Investment Dispute Settlement Navigator’ <http://investmentpolicyhub.unctad.org/ISDS>}

accessed 20 August 2018

4_{EFILA, ‘A response to the criticism against ISDS’ (2015)}

5_{Pia Eberhardt and Cecilia Olivet, ‘Profiting from Injustice: How law firms, arbitrators and financiers are fueling an}

investment arbitration boom’ (November 2012) 34–50

6_{Christian Tietje and Freya Baetens, ‘The Impact of Investor-State Dispute Settlement in the Transatlantic Trade and}

(6)

To meet the reservations against investment arbitration the European Union moved to establish a new kind of dispute settlement mechanism in future Free Trade Agreements. The Commission and Canada negotiated for their Trade and Investment Agreement to contain an Investment Court System (ICS) which was inspired by the World Trade Organisation’s dispute settlement and appellate bodies. The goal for the EU and Canada is for the Investment Court System to be transformed into a multilateral entity and to supersede ad-hoc investment arbitration.7

2.1. Structure of the Investment Court

The Investment Court System will consist of a Tribunal and an Appellate Tribunal. While the Tribunal shall be comprised of 15 members the exact constitution of the Appellate Tribunal will be arranged by a CETA Joint Committee, consisting of representatives of the EU and Canada.8

While the name suggests otherwise neither the Tribunal nor the Appellate Tribunal will be a standing body but a list of pre-appointed arbitrators who will convene if a dispute under CETA arises. The administration will be handled by the International Centre for Settlement of Investment Disputes (ICSID).9

2.2. Personal Scope

The question of who can bring claims constitutes the ratione personae of an international court. Only investors holding an investment can bring claims to the ICS. According to CETA an investor is either

1.) a natural person with Canadian or European Union citizenship

2.) a legal entity that is established under the law of one contracting party and has substantial business activity in its territory

3.) a legal entity that is established under the laws of one contracting party and controlled either by a legal entity with substantial business in its territory or by a natural person with Canadian or EU citizenship.10

7_{Laura Puccio and Roderick Harte, From arbitration to the investment court system (ICS) (EPRS 2017) 11–13} 8_{Comprehensive Economic and Trade Agreement, CETA Art 8.27 8.28}

9_{Puccio and Harte (n 7) 20}

(7)

Therefore, a company owned by a third state national with no substantial business activity in one of the contracting parties cannot bring claims to the Tribunal. This exclusion is intended to avoid claims by letter-box companies.11

2.3. Material Scope

The material scope is defined by Article 8.18. The Tribunal has the competence to rule on alleged breaches of investment protection under CETA. These rules are defined in sections C and D of CETA’s investment chapter. Section C contains the national treatment and the most-favoured-nation clauses and establishes a principle of non-discrimination. Section D contains provisions relating to the protection of investments such as the definition of just expropriation, fair and equitable treatment and full protection and security.12

CETA defines the term investment consistent with the conventional interpretation of the term which generally denotes any asset meeting certain criteria under control of an investor. These criteria are the transfer of funds, a long-term project, the purpose of generating income and the adoption of business risk. The participation in the management of the investment is used to distinguish between a direct and a portfolio investment. While direct investments are considered protected under customary international law portfolio investments are only protected if stated in the treaty covering the investment.13_{Since CETA does not define the management of the}

investment as a prerequisite it covers direct and portfolio investments.14

2.3.1. Standards of Protection

National treatment and most favoured nation clauses are put in investment treaties to protect the investors from discrimination. Both clauses establish that the host state shall accord to the investor treatment no less favourable than is accorded to other investors. In case of a national treatment clause other investors means national investors while in case of a most favoured nation clause other investors means third country investors.15

Fair and equitable treatment and full protection and security are two standard clauses of investment treaties. Full protection and security relates to the physical safety of investors and

11_{Puccio and Harte (n 7) 23–25}

12_{Comprehensive Economic and Trade Agreement (n 8) Art 8.18} 13_{Dolzer and Schreuer (n 1) 60–65}

14_{Comprehensive Economic and Trade Agreement (n 8) Article 8.1} 15_{Dolzer and Schreuer (n 1) 178–187}

(8)

investments. Such a clause does not make the host state liable for any harm that might come to the investor or investment but instead stipulates a principle of due diligence16_.

The meaning of the standard of fair and equitable treatment is disputed. Although there is agreement that it is meant to represent a standard independent from the host states legal system it is unclear whether it guarantees the minimum standard of international customary law or offers a higher standard of treatment.17_{The view that a fair and equitable treatment clause}

offers a higher level of protection than the minimum standard was developed in subsequent cases by the NAFTA Tribunal. This prompted its signatory states, including Canada, to issue an official interpretation. In it they maintained that fair and equitable treatment constitutes only the standard of protection required by international customary law. To avoid such occurrences CETA offers an exhaustive list of measures that constitute a breach of the standard. Additionally, a committee establishing recommendations for new definitions is to be formed.18

The unravelling of the world order in the post WW II era influenced the established international economic order and therefore the relationship between capital importing and exporting nations. Socialist post-colonial and Eastern European nations specifically sought to amend the conventional order in a series of UN resolutions such as Resolution 1803 on the Permanent Sovereignty over Resources, Resolution 3201 on the New International Economic Order and Resolution 3281 the Charter of Economic Rights and Duties of States. In respect to compensation for expropriation Resolutions 3201 and 3281 called for the abolition of the international minimum standard and for determination of compensations in accordance with national laws. Even though the Resolutions were supported by a majority of states in the General Assembly none of the developed states supported them and as non-binding resolutions they had little effect on the actual practice. 19

However, the differences of opinion on the mode of compensation led to the inability of states to conclude a multilateral investment treaty. Therefore, states sought to conclude bilateral treaties in which the right to expropriate was enshrined.20_{As a result, a state’s right to expropriate}

foreign property is seen even today as fundamentally connected to its sovereignty. For this reason, modern investment treaties do not contain clauses that forbid expropriation of covered investments but define the circumstances under which such taking of property is legal. These requirements are contained in the vast majority of investment treaties and are considered to be customary international law.

16_{ibid 149–153} 17_{ibid 122–126}

18_{Laura Puccio, Investment rules in trade agreements (EPRS 2015) 26–28} 19_{Andrew Newcombe (n 2) 26–31}

(9)

The requirements for legal expropriation are:

▪ taking for a public purpose ▪ in a non-discriminatory manner ▪ under due process

▪ payment of prompt, adequate and effective compensation21

Out of these requirements the meaning and nature of compensation was disputed the most. Today, the term prompt, adequate and effective compensation is defined as the payment of the market value of the expropriated asset without undue delay in a convertible currency.22

The requirements not only cover direct expropriation, which occurs when the title to the investment is taken, but also indirect expropriation. Here, in contrast to direct expropriation, the title remains with the investor but he or she is deprived of the opportunity to effectively control the investment.23_{CETA follows the established model for the legality of expropriation.}24

2.4. Procedure

Bringing a dispute to the Tribunal is not the only way to solve an issue under the regime of CETA. As an alternative to the ICS an investor may choose mediation, the national judicial system or other international courts. The exhaustion of local remedies is not a prerequisite to bring a claim to the Tribunal. To proceed the claimant must instead waive his right to pursue the matter at any domestic or other international court. This so called no U-turn clause was inserted to prevent forum shopping.25

If an investor decides to bring a claim a consultation period of at least six months must first be observed. The request for consultation must be brought within three years after the alleged breach or within two years after ceasing to seek a remedy from a national court. The consultation period lasts for a maximum of 18 months. If the investor fails to bring a claim to the court after this period, the request is considered to be withdrawn and no further claim with respect to the same measure can be brought again.

21_{Dolzer and Schreuer (n 1) 91} 22_{ibid 90–92}

23_{ibid 89–92}

24_{Comprehensive Economic and Trade Agreement (n 8) Article 8.12} 25_{Puccio and Harte (n 7) 18}

(10)

Due to the special properties of European Union law and the reluctance of the CJEU to permit any other court to decide on the division of competences between member states and the EU a mechanism to determine the respondent had to be established in Article 8.21. According to it the claimant may request a determination of the respondent by the European Union 90 days after the beginning of the consultation period. The EU may then decide on the respondent within 50 days by applying its internal rules. If the EU fails to inform the claimant paragraph 4 provides default rules to which all parties of the dispute and the Tribunal are bound.26_{Paragraph 4}

attributes a measure either to the European Union or to a Member State. A system of joint responsibility for shared competences is not envisioned.27_{Thus, the European Union will be the}

respondent for shared competences.

The respondent must consent to arbitration for the Tribunal to constitute. This consent can be denied by a state party according to the denial of benefit clause. It allows the state party to deny arbitration if it adopts a measure against an enterprise controlled by a third state national in relation to international peace and security and an award by the Tribunal would circumvent this measure.28

To mitigate the effect of frivolous lawsuits Articles 8.32 and 8.33 of CETA gives the respondent the opportunity to submit that a claim is manifestly without legal merit or unfounded by as a matter of law. The rules for early dismissal based on a claim being without legal merit were first introduced by ICSID in 2006. Since then ICSID arbitration tribunals have defined the term as requiring ‘the respondent to establish its objection clearly and obviously, with relative ease and despatch’.29_{In a further award a tribunal found that the early dismissal rules can also be applied}

on jurisdiction and competence but not on facts. Given the lack of definition of ‘manifestly without legal merit’ in CETA it is highly likely that a ICS would follow the opinion of the ICSID tribunals.30

Claims unfounded as a matter of law on the other hand are defined by CETA as ‘claims for which an award in favour of the claimant may not be made even if the alleged facts were true’.31

Procedurally an objection on the case being manifestly without legal merit must be filed before the first session of the Tribunal but at any rate within 30 days of its constitution. The objection that a claim is unfounded as a matter of law may be submitted as part of the respondent’s counter-memorial or as a preliminary question.

26_{Comprehensive Economic and Trade Agreement (n 8) paras 6,7}

27_{Stephan Wittich, ‘International Investment Law’ in André Nollkaemper, Ilias Plakokefalos, Jessica Schechinger (ed),}

The Practice of Shared Responsibility in International Law (2017) 845–846

28_{Puccio and Harte (n 7) 17}

29_{Trans-Global Petroleum, Inc. v. Jordan (2008) ARB/07/25 (ICSID)}

30_{John R. Crook, ‘Four Tribunals Apply ICSID Rule for Early Ouster of Unmeritorious Claims’ (2011)}

<https://www.asil.org/insights/volume/15/issue/10/four-Tribunals-apply-icsid-rule-early-ouster-unmeritorious-claims#_edn8>

(11)

After considering all preliminary question the Tribunal may dismiss the case or accept jurisdiction. After the Tribunal renders the award the parties may appeal within 90 days otherwise it is considered final.

Appeals traditionally were not part of the investment arbitration regime. The recognition of an award could either be challenged at a national court or in case of the ICSID regime be annulled on ground of the legitimacy of the process or revised in case of nova reperta. These are facts that come to light after the award was rendered without the applicant neglectfully causing the delay. Annulment renders the award invalid. Once invalid a claim can be resubmitted to a new tribunal.32_{The WTO regime on the other hand has an appellate mechanism. The WTO Appellate}

Body can amend decisions of a dispute settlement panel on the grounds of false application of the law.33_{CETA’s appeal tribunal will closely resemble a national appeal instance as it will be}

able to correct the Tribunal decisions on grounds of false application of the law and manifest errors in appreciation of facts as well as procedural grounds.34

2.5. Transparency and Public access

One of the main points of criticism of investment arbitration has been the lack of opportunity for third parties to actively or passively take part in the proceedings. This lack of transparency and public access stems from private commercial arbitration from which many concepts were adopted. While it is acceptable for two private enterprises to decide to settle a dispute privately this argument cannot be so easily accepted when one side represents the interests of the public.35

The transparency rules in CETA expand on the UNCITRAL rules on transparency in treaty-based Investor-State arbitration and offer a wide range of opportunities for the public to take part in proceedings. Generally, submissions by parties, hearings and awards are all to be made public. Exceptions can only be made for confidential and protected information.36

32_{Dolzer and Schreuer (n 1) 278–287}

33_{Dispute Settlement Understanding, DSU Article 17.6}

34_{Comprehensive Economic and Trade Agreement (n 8) article 8.28}

35_{Steffen Hindelang and Teoman M Hagemeyer, In Pursuit of an International Investment Court: Recently Negotiated}

Investment Chapters in EU Comprehensive Free Trade Agreements in Comparative Perspective (Directorate-General

for external policies 2017) 118

(12)

Public access defines the possibility of third parties and therefore the public to actively take part in proceedings. Non-parties to the process submitting opinions to the court are called amici curiae. Originating in common law systems the concept of amice curiae was adopted for international public law. Although CETA does not mention submissions by third parties in its Article dealing with transparency rules the UNCITRAL rules allow written submissions by third parties. Article 8.38 concerning information sharing among the signatory states also mentions written submissions by third parties as documents to be shared. In this context it is clear that CETA considers written third-party submissions to be admissible.37

2.6. Remedies

Under customary international law on state responsibility for international wrongful acts which is now codified in the UN Resolution 56/83 a state breaching an international obligation is still bound to perform the duties set out in this obligation and also has to make reparation for the breach.38_{Generally the hierarchical form of reparation is restitution - that is to re-establish the}

situation before the breach occurred and then monetary compensation.39

As is the case in traditional investment arbitration the Tribunal may only award monetary damages or restitution of expropriated property. However, physical restitution may always be substituted by the payment of monetary damages by the respondent. The primacy of monetary compensation is contrary to the principles of reparation in public international law mentioned above.40

This deviation from the norm is caused by a preference for monetary compensation by both parties of the dispute, in fact it was never disputed whether compensation should be paid, but to what this compensation should amount.41_{Investors generally ask an arbitration tribunal to award}

compensation and omit all other forms of reparation as this enables them to re-invest beyond the host state.42_{Host states too prefer monetary compensation as it is seen as a lesser infraction to}

their sovereignty and a way to retain regulatory freedom as they can ‘buy themselves out of their obligations’.43

37_{Hindelang and Hagemeyer (n 35) 123}

38_{Responsibiltiy of States for International Wrongful Acts 2001, Articles 28-31} 39_{ibid Articles 34-36}

40_{Steffen Hindelang, ‘Restitution and Compensation: Restructuring the Relationship in Investment Treaty Law’ (2001)}

5

41_{M. Sornarajah, The International Law of Foreign Investment (3rd edn, Cambridge University Press 2010) 411–451} 42_{Steffen Hindelang (n 40) 2,9}

(13)

2.7. Arbitrators

2.7.1. Appointment Procedure

The established arbitration mechanism also drew criticism for its selection process for arbitrators. A typical arbitrational tribunal usually consists of an uneven number of arbitrators. First the parties to the dispute each appoint an even number of arbitrators. The arbitrators appointed by the parties then proceed to select one or more neutral arbitrators in consensus.44

Neutral arbitrators are considered the most important ones as they break the tie. Consequently, there is often a lack of consent and a third party must step in. As this third party is often ICSID it has been argued that the process is dominated by certain states. Arbitrators also often appear as representatives of parties in other disputes which has led to the belief that they have a vested interest in the amount of cases brought and thereby deciding more often in favour of the investor.45

Under CETA a joint committee will appoint the 15 arbitrators of the Tribunal. In continuation of traditional arbitration procedures five of the arbitrators shall be European, five Canadian and five shall be from third countries. The president and vice-president of the Tribunal shall be appointed from among the third country members of the Tribunal.

When a dispute is brought to the Tribunal the president shall appoint three arbitrators on a rotational basis to settle the case. The parties to the dispute can also agree for the case to be settled by a single arbitrator who will also be assigned by the president. Due to the closed number of arbitrators and the selection process for a dispute the Investment Court will resemble conventional judicial review more closely.46

2.7.2. Qualification

As discussed above the selection of arbitrators is usually a matter of choice for the parties. Even though lists of competent arbitrators exist there are no formal requirements nor is there a formal process to appoint an ad-hoc arbitrator.

44_{ICSID Convention Art 37}

45_{Hindelang and Hagemeyer (n 35) 86–87} 46_{Puccio and Harte (n 7) 15}

(14)

The qualifications necessary to be appointed as an arbitrator to the ICS on the other hand are in line with international customs. Prospective arbitrators must possess the qualifications necessary to be appointed to judicial office in their home jurisdiction or be a jurist of recognized competence. Furthermore, they should show expertise in public international law especially in investment protection, trade law and dispute settlement. These requirements are identical with the appointment regime of the CJEU and the European Court of Human Rights (ECtHR) and thus a similar level of competence may be expected.47

2.7.3. Code of Conduct/Ethics

As arbitrators sometimes find themselves in a conflict of interests the need to administer these situations arose. The International Bar Association (IBA) was the first body to establish ethic guidelines in 2004.48_{Though not binding they are considered best practice and are often applied}

to assess an arbitrator’s possible conflict of interest.49_{Based on the IBA guidelines CETA has}

established its own slightly different code of conduct. This code however is not absolutely binding as the arbitrators will have the choice to either adhere to the IBA guidelines or the CETA code of conduct. As the IBA guidelines are already known most arbitrators will likely favour them to the unproven CETA code.50

2.8. Enforcement

The enforcement of arbitration awards depends on the arbitration rules chosen. If the arbitration process took place under the ICSID convention it itself offers an enforcement regime. Final awards issued under ICSID rules are to be considered by all contracting states as final judgements by their own courts and the pecuniary actions are to be enforced. The mode of enforcement itself is governed by the laws of the state.51_{The enforcement of arbitral}

proceedings under other rules are overseen by laws of the state of enforcement and by the New York Convention, which states an obligation to its contracting states to enforce foreign arbitral

47_{Hindelang and Hagemeyer (n 35) 86–87}

48_{IBA, ‘IBA 'Guidelines on Conflicts of Interest in International Arbitration' now available in multiple languages’}

<https://www.ibanet.org/ENews_Archive/IBA_July_2008_ENews_ArbitrationMultipleLang.aspx> accessed 4 February 2018

49_{Margaret Moses,}

‘http://arbitrationblog.kluwerarbitration.com/2017/11/23/role-iba-guidelines-conflicts-interest-arbitrator-challenges/’ <http://arbitrationblog.kluwerarbitration.com/2017/11/23/role-iba-guidelines-conflicts-interest-arbitrator-challenges/> accessed 4 February 2018

50_{Dominik Horodyski, ‘Code of conduct for arbitrators in CETA - a step forward in investment arbitration?’ (2/2015) 15} 51_{ICSID Convention (n 44) Art. 54}

(15)

awards arising out of disputes between natural or legal persons.52_{The review of final arbitral}

awards by national courts is limited by the New York Convention53_{and most national laws.}

CETA does not change this known regime. In contrast, it seeks to strengthen it by containing definitions declaring an award issued by either the Tribunal or the Appellate Tribunal as an award for which the ICSID and New York conventions are applicable.54

3. The European Union and International Dispute Settlement

3.1. IDS and External Policy of the EU

The relationship of the European Union with instruments of international dispute settlement is characterised by the duality of its nature. On the one hand, the EU states its adherence to and its wish to further develop international law in its founding treaty.55_{On the other, the CJEU has}

repeatedly denied the EU’s accession to international treaties containing dispute settlement mechanisms for not being compatible with EU law.

3.2. The Autonomy of EU Law

The European Communities were established via international treaty by six independent states in 1957 and subsequently integrated into the European Union in the treaties of Maastricht and Lisbon. A treaty between independent states clearly falls into the domain of international law. Nevertheless, it is argued that by way of its special properties, European law is sufficiently different from international law to warrant a distinction. For example, the CJEU held in Costa v

E.N.E.L. ‘By creating a Community of unlimited duration, having its own institutions, its own

personality, its own legal capacity of representation on the international plane and, more particularly, real powers stemming from a limitation of sovereignty or a transfer of powers from the States to the Community, the Member States have limited their sovereign rights, (…) and have thus created a body of law which binds both their nationals and themselves.’56_Following

this logic the CJEU argued that the member states of the EU have created a new layer of law

52_{New York Convention 1959 Art. 1} 53_{ibid Article V}

54_{Comprehensive Economic and Trade Agreement (n 8) Art. 8.41} 55_{Treaty of the European Union Articles 3 (5); 21}

(16)

which can be distinguished from both international and national law. The understanding of this layer is a pluralistic one. National and international law may still be applied as long as they do not conflict with the law of the European Union.

The doctrine of the autonomy of the EU legal order has its origin in the CJEU’s decisions in van

Gend & Loos and Costa v E.N.E.L. where it held that ‘The Community constitutes a new legal

order of international law for the benefit of which the states have limited their sovereign rights…’57_{and ‘the law stemming from the Treaty, an independent source of law, could not,}

because of its special and original nature, be overridden by domestic legal provisions’.58

The notion of the autonomy of the EU legal order was developed with respect to its relationship to the national legal orders of the member states to ensure the uniform application of EU law across the EU. Nevertheless, the CJEU has stated that the legal order of the European Union is also autonomous from international law when it stated that ‘… an international agreement cannot affect the allocation of responsibilities defined by the Treaties...’59_{in Commission v Ireland or ‘An}

international agreement cannot affect the allocation of powers fixed by the Treaties or, consequently, the autonomy of the Community legal system, observance of which is ensured by the Court by virtue of the exclusive jurisdiction conferred on it by Article 220 EC, jurisdiction that forms part of the very foundations of the Community.’ in Kadi.60

The legal grounds of the autonomy of EU law lie in Article 19 TEU and Article 344 TFEU. Article 19 TEU reflects the internal component as it grants the CJEU the exclusive right to interpret EU law, while Article 344 obliges the member states not to settle disputes arising out of the treaties by external methods. The concept of the autonomy of EU law is not a strictly legal one but stands in close connection with the notion of a European Constitution. The treaties constituting the primary law of the European Union and its precursory organisations are often referred to as the constitution or the quasi-constitution of the EU. Whether this concept is seen positively or not lies in the eye of the beholder, ultimately the discussion is not about the meaning of constitution in material sense but about the legitimacy of the European Union.61

Autonomy and legitimacy are innately linked since autonomy literally means ‘the right to give oneself its own law’.62_{The theory of autonomy in a modern sense was developed by Immanuel}

Kant, who understood it as capability to act according to morality, that is to be only bound by one’s own laws reached by reason. In extension, collective autonomy is the ability of a political

57_{van Gend & Loos 26/62 ECLI:EU:C:1963:1} 58_{Costa vs E.N.E.L. (n 56)}

59_{Commission of the European Communities vs Ireland (2006) C-459/03 para. 128}

60_{Joint Cases C-402/05 P and C-415/05 P- Yassin Abdullah Kadi and Al Barakaat International Foundation v Council}

of the European Union and Commission of the European Communities (2008) para. 4 (CJEU)

61_{Anne Peters, Elemente einer Theorie der Verfassung Europas (Duncker & Humblot 2001) 29–31} 62_{‘Black's Law Dictionary’ <https://thelawdictionary.org/autonomy/>}

(17)

body to follow its own laws. Collective autonomy relies on the normative legitimacy of its process. Normative legitimacy describes the evaluation of a certain action and can be categorised as democratic legitimacy derived from the public, legal legitimacy derived from the law, procedural legitimacy derived from the process used to reach a decision and reason-based legitimacy derived from the expectation from the public to endorse the foundations of a decision. All forms of legitimacy can be understood in a procedural and substantial sense. A court such as the CJEU relies on procedural and reason-based legitimacy. For the CJEU autonomy ultimately means that it must be able to decide on the validity, reach and interpretation of EU law within its own internal logic.63_{Whether the concept of a distinct body of EU law is accepted, or it seen as}

part of international law practically speaking autonomy is the monopoly of the CJEU to interpret the law of the European Union.

The external aspect of the EU legal order’s autonomy, that is the EU’s relationship to international law, deals with the distinction between EU and international law. The purpose of this distinction is to negate the differences in transforming international law among the member states, as the transformation of international law depends on the national legal order. Ultimately the goal again is to ensure the uniform application of EU law.64

The details of the CJEU’s evaluation of the EU’s external autonomy, as it relates to international dispute settlement was mainly developed in opinions given on the compatibility of an envisioned international treaty including a dispute settlement mechanism with the EU treaties. Such an opinion can be requested according to Article 218 (11) TFEU by either a member state, the European Commission, the European Council or the European Parliament.

3.2.1. Opinion 1/76

The first of such opinions was Opinion 1/76. Dealing with the establishment of a common inland waterway fund between Switzerland and the European Communities and a related Tribunal the CJEU held that the Community is ‘not only entitled to enter into contractual relations with a third country (...) but also has the power, while observing the provisions of the Treaty, to cooperate with that country in setting up an appropriate organism’ and ‘The Community may also (..) cooperate with a third country for the purpose of giving the organ of such an institution power of decision and for the purpose of defining, in a manner appropriate to the objectives pursued, the

63_{Christina Eckes, International rulings and the EU legal order: Autonomy as legitimacy? (Center for the law of eu}

external relations 2016)

(18)

nature, elaboration, implementation and effects of the provisions to be adopted within such a framework’.65

In Opinion 1/76, the CJEU ruled for the first time, that the EU’s participation in international dispute settlement is possible if the special character of European law is preserved. However, the CJEU took issue with the possibility of national courts requesting preliminary rulings from the new Tribunal and the intended participation of CJEU judges in the envisioned Tribunal.66

3.2.2. Opinion 1/91 and 1/92

The CJEU further elaborated on this matter in its Opinions 1/91 and 1/92. At this time, the CJEU had to decide on the compatibility of the European Economic Area’s (EEA) proposed judicial system with the treaties. The court reiterated the basic compatibility of IDS with the EU’s legal order. The envisioned dispute settlement system was nevertheless declared incompatible with the treaties due to issues that would have again threatened the autonomy of the EU’s legal system.

The first problem in the envisioned dispute settlement system related to allocation of competences in the European Union. According to the proposed treaty the EEA’s court would have had jurisdiction over disputes between the contracting parties to the agreement with ‘contracting parties’ being defined as the (European) Community, its member states or both. If a case was brought to the EEA’s court it would have needed to interpret the term contracting party and therefore allocate competences within the EU. This competence however is reserved for the CJEU within the EU’s system, as the CJEU has jurisdiction over the treaties. Consequently, the CJEU found it incompatible with the autonomy of EU law to confer this jurisdiction to the EEA court.

The CJEU also held that decisions of an international agreement incorporating its own system of dispute resolution would be binding for the EU including the CJEU. Given that the EEA treaty consisted of a large corpus of essentially identical rules to the existing European Community Rules and the stated intend of uniform application the CJEU was concerned that this would lead to a situation in which the EEA court would interpret and define Community provisions. The court found this to be incompatible with the ‘very foundations of the Community’.67

65_{Opinion 1/76 ECLI:EU:C:1977:63 para. 5} 66_{ibid para 17-22}

(19)

Finally, the CJEU found the proposed procedure for the courts of EFTA states to submit requests for interpretation of provisions contained in the EC treaty to the CJEU to be insufficient. Such a procedure was in the convenience of the requesting state and the CJEU’s answer to such a request was seen as being purely advisory. The court held, that such a situation is incompatible with the EU’s legal order as in it rulings by the court are of a binding nature.68

The CJEU accepted a revised form of the EEA treaty in its Opinion 1/92 one year later. In it the proposed EEA court was replaced by an EFTA court and a joint committee. The joint committee was established to ensure the uniform application of EFTA rules similar to community rules while not affecting the case law of the CJEU.69_{It was also tasked to settle disputed among the EFTA}

states and the European Community via arbitration. However, the committee was bound to the interpretations of the CJEU.70

3.2.3. Opinion 1/00

In 2000, an opinion regarding the compatibility of an European Common Aviation Area (ECAA) with the Treaties was requested. Building on the foundations laid in the previously discussed Opinions the CJEU stated, that such an agreement would not infringe the autonomy of the EU legal order if, ‘the essential powers of the Community and its institutions as conceived in the Treaty remain unaltered’71_{and ‘the procedures for ensuring the uniform interpretations of the}

rules of the ECAA Agreement and for resolving disputes will not have the effect of binding the Community and its institutions, in the exercise of their internal powers, to a particular interpretation of the rules of Community law...’72

The court found the ECAA treaty to be compatible with EU law, as only the Community and no member state was a signatory and therefore a need for an external body to interpret ‘contracting party would not arise’. Furthermore, it found that there was a sufficient system in place to prevent a binding effect of interpretations of provisions similar to community law by external bodies. Firstly, the ECAA agreement allowed courts of non-EU contracting parties to request a preliminary ruling by the CJEU. Secondly, the provisions of the ECAA agreement similar to Community law had to be interpreted in light of CJEU case-law. Finally, a mechanism to coordinate with future case-law of the CJEU was established.73

68_{ibid para. 54 - 61}

69_{Opinion 1/92 ECLI:EU:C:1992:189 para. 21-25} 70_{ibid paras 26-35}

71_{Opinion 1/00 ECLI:EU:C:2002:231 para. 12} 72_{ibid para. 13}

(20)

3.2.4. Opinion 1/09

The CJEU further developed the criteria for to compatibility of IDS in its Opinion 1/09 dealing with the formation of a Unified Patent Court. In this Opinion, the CJEU remarked on Article 19 TEU. It held that CJEU and member courts together form the judicial system of the EU and stressed the importance of the procedure to request preliminary rulings in ensuring the uniform interpretation of EU law.

Although proposed patent court would be outside this system it would have exclusive jurisdiction in areas formerly under the jurisdiction of member states. This situation would deprive the national courts of the ability to ask for a preliminary ruling from the CJEU in these areas.74

The CJEU further referred on the question of responsibility for breaches of EU law. If a national court were to violate EU law the treaties provide for a way to bring proceedings against the member state in question. For the Patent court, such actions would not be possible.75

Furthermore, the CJEU held that the Patent Court would have the obligation to apply and interpret EU law. The court has repeatedly held that decisions of an external dispute settlement system set up under an international agreement could bind the CJEU, as long as it does not interfere with the essential character of the EU legal system. This statement however was referring to dispute settlement systems which were set up to resolve disputes arising under the international agreement itself. Because the Patent Court would have to apply EU law, situations in which it would have to decide a dispute relying on rules governing other areas of EU law could occur. This could go as far as the Patent Court having to apply and interpret fundamental rights and general principles or even examine if acts by EU institutions are valid.76

The Court ruled the Patent Court to not be compatible with the Treaties as it would alter the judicial system of the EU and thereby change the nature of EU law.

3.2.5. Opinion 2/13

In Opinion 2/13, the CJEU had to decide whether an accession to the ECHR by the EU is compatible with the treaties. The ECHR is a regional agreement on fundamental rights to which

74_{Opinion 1/09 ECLI:EU:C:2011:123 paras 66-69} 75_{ibid paras 86-88}

(21)

all EU member states are parties. In the European Court of Human Rights, a mechanism for controlling alleged breaches of the Convention by its signatories is provided. The CJEU had to ascertain whether this external mechanism was compatible with the Treaties.

The CJEU followed its settled reasoning in declaring an agreement providing for dispute settlement by an external body to be compatible with EU law, as long as it does not affect the autonomy of EU law. It subsequently proceeded to point out how an accession of the EU to the ECHR would affect said autonomy.

First the CJEU discusses the effect of Article 53 of the ECHR and the EU Charter of fundamental rights (CFR) respectively. Article 53 of the ECHR allows the contracting parties to provide for higher standards of protection than guaranteed in the Convention. Article 53 CFR states that the no provision of the Charter may be interpreted to curtail any standards of protection laid down in Union law and international law and by international agreements to which the Union, the Community or all the Member States are party, including the European Convention for the Protection of Human Rights and Fundamental Freedoms, and by the Member States’ constitutions. The CJEU has interpreted Art 53 CFR as preventing the member states to establish higher standards that would adversely affect the unity of EU law. It then established that both Articles have to be coordinated to be compatible with EU law. The power of the member states to provide for higher standards has to be limited in so far as it does not surpass the level of protection laid out in the Charter and thereby negatively affecting the unity of EU law.77

Then the CJEU elaborates on the principle of mutual trust, which is of fundamental importance for the EU, as it allows an area without internal borders to function. This principle lays down a duty for the member states to consider all other member states to be complying with EU law, particularly in the observance of fundamental rights. In contrast the ECHR contains a duty of reciprocally checking the observance of human rights by other members. The CJEU found this duty to be incompatible with the principle of mutual trust.78

Furthermore, Protocol No. 16 of the ECHR would allow for courts of member states to request an advisory opinion on the interpretation and application of rights guaranteed by the ECHR from the ECtHR. As the Convention would become part of the EU law this would circumvent the EU’s own procedures for preliminary questions, particularly for rights in the ECHR which correspond

77_{Opinion 2/13 ECLI:EU:C:2014:2454 paras. 187-190} 78_{ibid paras 191-195}

(22)

to such in the Charter. As mentioned in Opinion 1/09 the CJEU sees the courts of the member states via the procedure for preliminary questions as integral part of the EU’s judicial system.79

Subsequently, the CJEU remarked on Article 344 TFEU which provides the CJEU with a monopoly in settling disputes arising out of the EU treaties. By way of the EU accession the ECHR would become part of EU law and thus give the CJEU exclusive jurisdiction for disputes between member states or between member states and the EU. The CJEU noted, that Article 33 ECHR provides for a mechanism in which contracting parties can submit an alleged breach by another party to the ECtHR. The CJEU held, that the possibility of bringing such a dispute between member states of member states and the EU to any other court is a violation of Article 344 TFEU.80

The CJEU then turned its attention to the co-respondent mechanism. This mechanism was designed to avoid situation in which the ECtHR would have to decide on competences within the EU, as it could hold both the EU and one or more member states to be responsible.81_The

mechanism allows for the EU or a member state to become a party to the dispute either by accepting an invitation by the ECtHR or by decision of the ECtHR after a request by the EU or a member state. Before the ECtHR grants a request, it has to check the plausibility of the reasons given and thereby asses the division of powers in the EU. The CJEU found this to be incompatible with EU law, as it would interfere with the division of competences within the EU. The mechanism further is incompatible with EU law as it holds the co-respondents jointly responsible for violations of the ECHR. This disregards that member states may have held reservations on certain Articles of the convention. Lastly, the co-respondent mechanism allows the ECtHR to only hold one co-respondent liable. Giving the ECtHR that decision-making power means giving the court the opportunity to decide on the division of competences in the EU.82

The court also took issue with the envisioned prior involvement procedure for two reasons. First it found that even the competence of deciding whether the CJEU has already given a judgement on a certain issue would amount to giving the ECtHR the jurisdiction to interpret case-law of the CJEU. To that amount, it suggested a mechanism of prior involvement of the EU institution involved in a case.83_{Moreover, the CJEU found that the prior involvement procedure of the}

Accession Agreement did not include bringing questions regarding the interpretation of the EU secondary law before it. 84

79_{ibid paras 196-199} 80_{ibid paras. 201-214}

81_{View of Advocate General Kokott ECLI:EU:C:2014:2475 para. 176} 82_{Opinion 2/13 (n 77) paras. 229-234}

83_{ibid paras 236-241} 84_{ibid paras. 242-247}

(23)

Finally, the CJEU held that its own jurisdiction regarding the Common Foreign and Security Policy is limited by EU law itself. For the ECtHR, on the other hand, no such limitations exist. Therefore, an external body would have exclusive competence to decide on the legality of certain acts by the EU institutions in the field of the CFSP. As already stated in Opinion 1/09 the court finds that conferring such competence exclusively to a body outside the EU’s judicial framework is incompatible with EU law.85

Due to the delicate nature of human rights protection Opinion 2/13 was met with widespread criticism. The overarching reaction of commentators was the feeling that the CJEU wanted to consolidate power and therefor looked to find potential problems in order to reject the Accession Agreement86_{and that the CJEU was too risk averse.}87

Firstly, it is argued that Articles 53 of the ECHR and the CFR might not pose a threat to the unity of EU law. The CJEU bases its reservation on the Melloni judgement, restating that not even national constitutional law may negatively affect the primacy and unity of EU law.88_{Article 53}

CFR only takes effect in cases of simultaneous applicability of the CFR and national fundamental rights, which occurs when member states are implementing EU legal acts.

In those cases, the courts of the member states have to apply the CFR and thereby EU law. In these constellations, the preliminary ruling procedure according to Article 267 TFEU does apply, guaranteeing the uniformity of EU law.89_{Furthermore, it is argued that Article 53 ECHR cannot}

convey powers to signatories that they did not have before acceding to the convention and thereby keeping the Melloni boundaries in place.90

The fears of the CJEU regarding the advisory opinion procedure of Protocol No 16 circumventing the preliminary question procedure of Article 267 TFEU are seen as too hypothetical since the ECtHR procedure is optional while preliminary questions are obligatory for high courts. The only danger for the unity of EU law would be the construction of an act claire using the ECtHR by a high court of a member state.91_{Other opinions hold the CJEU’s fears as}

justified when viewed under a constitutional scope as the ECHR would become an integral part

85_{ibid paras. 249-257}

86_{(n 62); Leonard F. M. Besselink, ‘Acceding to the ECHR notwithstanding the Court of Justice Opinion 2/13’ (2014)}

<https://verfassungsblog.de/acceding-echr-notwithstanding-court-justice-opinion-213-2/#.VJndiP9oA1A> accessed 9 July 2018; Tobias Lock, ‘Oops! We did it again – the CJEU’s Opinion on EU Accession to the ECHR’ (2014)

<https://verfassungsblog.de/oops-das-gutachten-des-eugh-zum-emrk-beitritt-der-eu-2/> accessed 9 July 2018; Walther Michl, ‘Thou shalt have no other courts before me’ (2014) <https://verfassungsblog.de/thou-shalt-no-courts/> accessed 9 July 2018

87_{Pieter Jan Kuijper, ‘Reaction to Leonard Besselink’s ACELG Blog’ (2015)}

<https://acelg.blogactiv.eu/2015/01/06/reaction-to-leonard-besselinks%E2%80%99s-acelg-blog/>

88_{Stefano Melloni v Ministerio Fiscal ECLI:EU:C:2013:107 para 60} 89_{Walther Michl (n 86)}

90_{Daniel Halberstam, ‘"It's the Autonomy Stupid!" A Modest Defense of Opinion 2/13 on EU Accession to the ECHR,}

and the Way Forward’ (Universtiy of Michigan 2015) 22

(24)

of EU primary law. As an integral part of EU law, a member states court could effectively use the Convention against secondary EU law via the advisory opinion procedure.92

The CJEU’s position on the concept of mutual trust in the area of freedom, security and justice came under criticism as well. However, this concerns might be justified when looking at the example of the European Asylum System. There is a stark difference between the ECtHR’s and the CJEU’s jurisprudence regarding the Dublin System highlighted in two cases just removed by a few months from each other. In N.S. the CJEU found that an asylum seeker may only resist transfer to the member state of first entry based on fundamental rights if there are systemic deficiencies which would amount to substantial grounds for believing the asylum seeker would face a real risk of being subjected to inhuman or degrading treatment.93_{In contrast, the ECtHR}

established a duty for the sending state to review claims that there is a real danger of treatment contrary to the ECHR. The ECtHR makes no mention of a need for systemic deficiencies in the receiving member state. By requiring a strict assessment of the situation in the receiving state by the sending one the ECtHR was challenging the concept of mutual trust in M.S.S v Belgium and

Greece.94

Given that the Area of Freedom, security and justice is a weak point in the protection of fundamental rights in the EU the reservations by the CJEU are seen as an attempt to remove issues from the jurisdiction of the ECtHR95_{and as weakening the EU’s credibility in protecting}

human rights especially to other parties such as Russia or Turkey.96

Furthermore, the CJEU’s rejection to permit the ECtHR to hold jurisdiction over measures in the CFSP was met with opposition and astonishment. This was seen as a way for the CJEU to establish the courts exclusive jurisdiction over an area it does not hold any yet.97_{The result of}

the CJEU’s concerns is a hole in the protection of human rights in an area such violations may occur often leaving potential victims of human rights violations occurring during implementation of the EU’s CFSP without effective protection on an international level.98

92_{Daniel Halberstam (n 90) 19}

93_{N. S. v Secretary of State for the Home Department ECLI:EU:C:2011:865 para 94} 94_{M.S.S. v Belgium and Greece Application 30696/09 para 293 (ECtHR)}

95_{Tobias Lock (n 86)} 96_{Walther Michl (n 86)} 97_{Tobias Lock (n 86)}

98_{Steve Peers, ‘The CJEU and the EU’s accession to the ECHR: a clear and present danger to human rights}

protection’ (2014) <http://eulawanalysis.blogspot.com/2014/12/the-cjeu-and-eus-accession-to-echr.html> accessed 10 July 2018

(25)

3.3. The WTO and EU law

In contrast to the Opinions above the CJEU has not declared the WTO agreements to be incompatible with EU law but denies direct effect of the agreements and of decisions of its Dispute Settlement Body (DSB), which essentially means that the legality of measures by organs of the Union are not to be evaluated in the light of the provisions of the WTO agreements.

The CJEU does this based on the argument that WTO agreements are essentially negotiation-based and with the purpose for the signatory states to ‘enter into reciprocal and mutually advantageous arrangements. Due to the principle of reciprocity, the CJEU further argues that granting direct effect to the WTO rules while other parties don’t do the same would deprive the executive organs of the Union of their room to manoeuvre. An exception is only granted when the Union measure intends to implement an obligation arising out of WTO rules or the measure refers explicitly to a provision of a WTO agreement.99

Dispute Settlement under the WTO is a case of State to State arbitration and deals with disputes arising from the GATT. The system consists of a Dispute Settlement Body and an Appellate Body. The beginning of the process is a request for consultation. If those prove to be unsuccessful each party can request for a Panel to be constituted. This Panel then writes a report for the DSB to adopt. The parties to the dispute may appeal to the Appellate Body on the grounds of false application of the law. The Appellate Body also writes a report for the DSB to adopt. Once adopted the decisions of the report are binding to the parties and are to be implemented. If one party does not implement the required measures the other party may start negotiations on a settlement. If those prove to be unsuccessful the DSB may allow the wronged party to apply trade sanctions against the other party100_.

The CJEU had to decide on the direct effect of DSB decisions in Leon van Parys v Belgisch

Interventie- en Restitutiebureau. The case essentially dealt with a regulation by the EC on the

import of bananas, which was deemed incompatible with WTO law by a Panel of the DSB. By way of a preliminary ruling procedure the CJEU had to answer whether the EC regulation was valid given that it was deemed incompatible with GATT by the DSB. The CJEU referred to its standing case-law regarding the denial of direct effect of WTO agreements. Additionally, it focused on Article 22 of the DSU which allows for negotiations if DSB decisions are not implemented within a reasonable period. The court argued that the giving the decisions of the

99_{Portugal v Council ECLI:EU:C:1999:574 paras 40-47} 100_{Dispute Settlement Understanding (n 33) Article 22.2}

(26)

DSB direct effect would deprive the executive organs of the Union of the possibility to negotiate in context of the WTO.101

Separated from the issue of direct effect the CJEU also had to decide whether the WTO agreements fell within the exclusive competence of the EC in its Opinion 1/94. Based on its case law102_{the CJEU considered international agreements concluded by the Union to form an integral}

part of EU law. Following this, the CJEU would have the exclusive competence to interpret these agreements within its jurisdiction according to Article 267 TFEU (ex Article 234 TEC). In the Opinion, the CJEU found that the GATT fell within the exclusive competence of the EC while GATS and TRIPS were mixed agreements. Due to the exclusive competence of the CJEU to settle disputes regarding the interpretation and application of the treaties according to Article 344 TFEU (ex Article 292 TEC) and the Haegeman case the CJEU declared itself solely competent to settle disputes among member states regarding the WTO treaties. Therefore, member states could not use the DSB of the WTO to settle disputes among themselves. The lone exceptions were disputes about provisions lying in the exclusive competences of the member states. After the Treaty of Lisbon gave the EU exclusive competence for all WTO treaties103_{the CJEU also}

has the exclusive competence to settle disputes regarding TRIPS and GATS.104

3.4. Conclusion

The CJEU does not regard the law of the European Union as a set of substantial provisions of international law but as a constitutional framework for a state like entity. Thus, its analysis is not a partial one but comprehensive taking into account the fundamental characteristics of EU law.

Analysing the Opinions given by CJEU on the autonomy of EU law and its connection to international dispute settlement it can be concluded that following criteria must be met by an international dispute settlement system to be compatible with special features of EU law.

• Firstly, the distribution of respondents and therefore competences between members and the Union must be decided by the CJEU.

• Secondly, interpretations of EU law or similar provisions (spill-over effects) by an external court must not be binding for the CJEU.

101_{Léon Van Parys NV v Belgisch Interventie- en Restitutiebureau ECLI:EU:C:2005:121 paras. 45-48} 102_{Meryem Demirel v Stadt Schwäbisch Gmünd ECLI:EU:C:1987:400; R. & V. Haegeman v Belgian State}

ECLI:EU:C:1974:41

103_{Treaty on the Functioning of the European Union, TFEU Article 207}

104_{Tobias Lock, Das Verhältnis zwischen dem EuGH und internationalen Gerichten (1st edn, Mohr Siebeck 2010)}

(27)

• Thirdly, reviewing the legality of acts by EU institutions must be the exclusive competence of the CJEU.

• Finally, member state courts are part of the EU judicial system, therefore no system compromising the preliminary question procedure may be established.105

Furthermore, this question is not a purely legal one as the connection of autonomy and legitimacy must be kept in mind. The EU’s legal order as a legal order sui generis is under attack, both from the perspective of international law and national law.106_{The CJEU is often}

criticised for taking absolute positions and not considering other facets to the problem in its decisions107_{but for the CJEU to defend the autonomy of EU law is to defend its legitimacy. Thus,}

the autonomy of EU law must be ensured as an absolute value, as it essentially ensures the functioning of the EU legal system.108_{Keeping this point in mind it is not surprising that the CJEU}

does not evaluate international treaties as equal to EU law but as the constitutional court of the European Union, carefully watching over the unity of its law.

4. The ICS and the Autonomy of EU Law

The Commission has decided not to ask the CJEU for an opinion on the compatibility of the proposed ICS system with EU law. After initial reluctance, the European Parliament has also agreed to CETA relying on a report by its legal service.109_{However, Belgium has submitted a}

request for an opinion to the CJEU110_{and the German Constitutional Court may submit}

preliminary questions regarding the Investment chapter to the CJEU. Consequently, the CJEU will decide on the compatibility after all.

4.1. Slovak Republic v Achmea BV

A hint as to which direction the CJEU might lean can be found in Slovak Republic v Achmea BV. In this case, it found an arbitration clause in a Bilateral Investment Treaty between two EU

105_{Stephan W. Schill, ‘Luxembourg Limits: Conditions for Investor-State Dispute Settlement under Future EU}

Investment Agreements’ in Marc Bungenberg, August Reinsich, Christian Tietje (ed), EU and Investment Agreements:

Open Questions and Remaining Challenges (Nomos 2013) 41

106_{Nikos Lavranos, ‘The CJEU's relationship with other international courts and Tribunals’ in Henning Koch and others}

(eds), Europe: The new legal realism (2010) 408–410;

107_{Andrej Lang, ‘Autonomie „über alles“: Eine Kritik des Achmea-Urteils des EuGH’ <https://www.juwiss.de/24-2018/>} 108_{Eckes (n 63) 17–18}

109_{European Parliament - Legal Service, ‘Legal Opinion - Compatibility with the Treaties of investment dispute}

settlement provisions in EU trade agreements’ (6 January 2016)

110_{‘Request for an opinion submitted by the Kingdom of Belgium pursuant to Article 218(11) TFEU’}

<http://curia.europa.eu/juris/document/document.jsf?text=&docid=196185&pageIndex=0&doclang=en&mode=lst&dir= &occ=first&part=1&cid=909639> accessed 20 August 2018

(28)

member states to be incompatible with EU law. To find out how the points raised might translate to an external Investment Agreement they must first be analysed.

The Achmea case came to CJEU’s attention via a request for a preliminary ruling by the German Federal Court. The German Court system had to deal with the issue because Slovakia challenged the jurisdiction of an ad-hoc tribunal established in Frankfurt under German law deciding on the violation of the Netherlands-Slovak BIT due to the liberalisation and subsequent de-liberalisation of the Slovak health insurance market.

In its decision, the CJEU again reiterated its case-law on the autonomy of EU law. Specifically, its distinction from international and national law and the resulting exclusive competence of the EU judicial system to interpret and apply EU law. The court then proceeds to stress the importance of the preliminary ruling procedure in Article 267 TFEU for the EU’s judicial system.111

Subsequently, the CJEU declares that the arbitral tribunal constituted under the BIT specifically must apply the law of the contracting parties and thus EU law. Following this finding the judges hold that any court applying EU law must be able to submit preliminary questions to the CJEU in accordance with Article 267 TFEU. To do so this court must be within the EU legal system and therefore part of the legal system of the member states.112

The CJEU then holds that the tribunal is indeed not part of the judicial system of a member state finding that it is precisely the point of arbitral tribunals not to be part of the judicial system of the disputing parties.113_{The CJEU then moves on establishing that an arbitral award made by a}

Tribunal which may interpret EU law but is not part of the EU judicial system must be subject to review by a court which can submit a question according to Article 267 TFEU.

The CJEU finds that first an arbitration tribunal may choose its seat itself and thereby has control over whether its awards are subject to review. Secondly, it finds that in the concrete case the tribunal was situated in Germany and that German Civil law only offers a limited review of arbitral awards. Even though limited review is acceptable in private commercial arbitration, the CJEU finds investment arbitration to be different as it ‘derive[s] from a treaty by which member states agree to remove from the jurisdiction of their own courts, and hence from the system of judicial remedies which requires them to establish in the fields covered by EU law, disputes which may concern the application or interpretation of EU law ‘114

111_{Achmea v Slovak Republic ECLI:EU:C:2018:158, [2018] paras 32-37} 112_{ibid paras 38-43}

113_{ibid para 45} 114_{ibid para 55}