Case C-600/14, Germany v Council (OTIF). More Clarity over Facultative ‘Mixity’?
Szilárd Gáspár-Szilágyi provides comments on a recent decision by the CJEU and on its relevance for the negotiation and conclusion of future trade and investment agreements.
1. Setting the context
Opinion 2/15 on the division of requisite competences between the Union and its Member States for the conclusion of the EU-Singapore FTA has most certainly caused a flurry of academic discussions. Amongst the various topics discussed, two come to mind that are important for this short analysis. First, did the CJEU intend with its reasoning to effectively abolish ‘facultative mixity’ and ‘facultative EU-only’ agreements? (see here, here and here). Second, by placing almost all aspects of the EU-Singapore FTA under exclusive EU competences, with the exception of ISDS and non-direct foreign investment, did the Court of Justice implicitly determine the future of EU trade and investment policy? (see here, here and here). In other words, with a Commission that is determined to prioritize EU-only agreements, is the conclusion of mixed investment agreements in parallel to exclusive trade agreements a logical consequence of Opinion 2/15?
The discussion on facultative mixity revolves around a seemingly simple question: to what extent does the nature of the EU’s competence (exclusive or shared) over an international agreement (or part of it) determine whether the agreement is supposed to be concluded by the EU alone or together with the Member States as a ‘mixed’ agreement? The notion of facultative mixity recognizes the ability of the Union’s legislator to exercise discretion over whether to conclude an international agreement as an EU-only or a mixed agreement when parts of it fall under shared competences. Indeed, both AG Sharpston in Opinion 2/15 (para. 74) and AG Whal in Opinion 3/15 (para. 119, here) emphasized that the way in which such an agreement is concluded is not legally determined but is subject to deliberations in the Council. As a corollary to facultative mixity, international agreements falling in part or in toto within the ambit of shared competences may also be concluded exclusively by the Union, thus giving room to the notion of ‘facultative EU-only’ agreements. An example of this is the Stabilization and Association Agreement with Kosovo. Be that as it may, Ankersmit observed that in practice most agreements, which fall under shared competence, are concluded as ‘mixed’ agreements.
The political dilemma surrounding the signing of CETA and leading to the Walloon compromise (ultimately resulting in Belgium requesting the Court of Justice in Opinion 1/17 to decide on the compatibility of CETA’s investor-state dispute settlement provisions with EU law) illustrates the practical implications that Member State parliamentary involvement has on the ratification of EU agreements. ‘Facultative mixity’ constitutes in this respect an important instrument to balance, on the one hand, reputational concerns of the EU as a treaty-making actor as well as the effective implementation of the CCP, with, on the other hand important concerns over legitimacy and democratic scrutiny and, more generally, the role of the domestic parliaments in EU external relations.
But then, along came Opinion 2/15 where the Court of Justice, finding that the EU-Singapore FTA partly falls within shared competences, concluded that the agreement, therefore, “cannot be approved by the European Union alone” (paras. 244, 282, and 304). With respect to ISDS, the Court even more forcefully stipulated that such a mechanism “cannot, therefore, be established without the Member States’ consent” (para. 292). Therefore, some wondered, whether these paragraphs meant the end of facultative mixity, in the sense that mixity must be chosen whenever an agreement (or parts of it) falls under shared competences. Or so it seemed until 5 December 2017.
2. Case C-600/14, Germany v Council (OTIF)
The case, which seems to have changed the previous assumption, involved a German challenge to the validity of a Council Decision establishing a position to be adopted on behalf of the EU at a session of the OTIF (Organization for International Carriage by Rail) Revision Committee concerning certain amendments to the Convention Concerning International Carriage by Rail (COTIF). Germany voted against the Council Decision, since it considered that some of the proposed amendments did not fall under EU competence. During the annulment proceedings Germany argued that the EU lacked competence in the matter and acted in violation of the principle of conferral, the obligation to state reasons, the principle of sincere cooperation, together with the principle of effective judicial protection. The Court dismissed the action.
For the purposes of the present discussion paras. 67 and 68 of the judgment, which the Court of Justice used to clarify some of its findings in Opinion 2/15, warrant attention. First, in para. 67 the Court relied on Opinion 2/15 to substantiate its reasoning according to which the Union can exercise its external competences in a field, even though “the Union had taken no internal action, by adopting rules of secondary law, in that field”, such as in the case of non-direct foreign investment.
Second, in para. 68 the Court tackles some of the uncertainties surrounding the effects of Opinion 2/15 on facultative mixity. In a somewhat surprising move, sought to clarify para. 244 of Opinion 2/15, the Court argued that the conclusion that the EU could not act alone in the shared area of non-direct foreign investment was premised on the specific circumstances of that case. According to the Court it “did no more than acknowledge the fact that, as stated by the Council in the course of the proceedings relating to that Opinion, there was no possibility of the required majority being obtained within the Council for the Union to be able to exercise alone the external competence that it shares with the Member States in this area.”
This contextualization with reference to Council voting patterns suggests that the Court of Justice in Opinion 2/15 did not intend to significantly change established case law by proposing mandatory mixity for agreements covered partly or entirely by shared competences. The existence of shared competence over a policy area does not, therefore, dictate who is acting in order to ratify it, which remains largely subject to political discretion of the legislator. In other words, the Court was not prepared to abandon the notion of facultative mixity just yet.
3. The broader implications
The OTIF case is relevant for the negotiation and conclusion of future trade and investment agreements in several ways.
On the one hand, it illustrates that a policy based on the separation of trade from investment aspects of future agreements primarily responds to a lack of political consensus. The removal of investment protection from the negotiating directives for the FTAs with Australia and New Zealand cannot therefore be attributed to Opinion 2/15, but rather reinforces the disbelief that a requisite majority for the conclusion of EU-only agreements covering non-direct investment and ISDS is likely to be reached in Council. However, even after the Court’s recent remarks in the OTIF case it remains to be seen whether the conclusion of EU-only investment agreements with ISDS – irrespective of the political contestation – should be considered as legally possible. Although it would be favorable to extend the Court’s revived devotion of facultative mixity to the ISDS provisions in future EU agreements, the Court’s explicit request in Opinion 2/15 for Member State consent on the issue cannot lightly be dismissed.
On the other hand, the OTIF case reaffirms that the conclusion of EU agreements as mixed agreements does not prevent subsequent exclusive EU implementing action. In OTIF the CJEU confirms that the Council is equipped to adopt a position on aspects concerning shared competences despite the mixed nature of the agreement. Neither is the adoption of positions within the framework of trade and investment agreements dictated by the nature of the agreement itself. This has a potential impact on the scope of activity of the Commission in the Trade Committees set up by the FTAs, as well as for the determination of the respondent in investor-State disputes.
More generally, however, the Court’s attempt to clarify its reasoning ex post facto is highly problematic. The reasoning of the CJEU in Opinion 2/15 was messy to begin with, but the OTIF case, albeit enlightening and alleviating some of the potentially far-reaching ramifications of Opinion 2/15, threw a shadow of uncertainty over the finality of the Courts decision. Whilst the clarification of prior cases in subsequent decisions is not a novelty, what is somewhat worrisome is that a Grand Chamber judgment was used to alter the clear meaning of a paragraph found in a judgment of the Full Court. Furthermore, whilst para. 68 of the OTIF judgment is meant to clarify para. 244 of Opinion 2/15, what about the other paragraphs of the Opinion, which refer for example to ISDS and the need to include the Member States (para. 292)? A recent conversation with one of the Judges of the Court sheds some light of what exactly had happened in Opinion 2/15. Given the complexity of that case, the judges simply forgot to tackle the issue of ‘facultative mixity’ and when the unlikely opportunity came in OTIF to clarify their previous omission, they did.