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ClientEarth Communications

14th February 2019

Rule of law

EU Parliament-approved investment agreement may be illegal

Lawyers have warned that a European investment agreement, endorsed yesterday by the EU Parliament, may not be compatible with the law.

Alongside the bloc’s free trade deal with Singapore, the parliament approved an investment protection agreement that includes the controversial Investment Court System (ICS).

The European Court of Justice (ECJ) is currently deciding on the legality of the ICS, as part of the EU’s free trade agreement with Canada, the Comprehensive Economic and Trade Agreement (CETA).

Legal experts from ClientEarth, together with other lawyers and academics, have serious doubts that CETA’s investment court system would survive scrutiny by the Court because ICS undermines Europe’s judicial system. In its landmark judgment Achmea, the ECJ found that investor-state dispute settlement (ISDS) mechanisms “remove” disputes from the jurisdiction of EU courts.

Moreover, more than 50 organisations from Europe and 20 global partners have urged MEPs not to ratify the investment agreement, the EU-Singapore Investment Protection Agreement (EUSIPA) until the ECJ has rendered its opinion on the ICS under the Canadian agreement.

ClientEarth trade lawyer Amandine Van Den Berghe said: “Going ahead with the vote was an open display of disregard for the pending opinion of the Court.”

“The Court’s response will have far-reaching implications. It could disrupt the entry into force of CETA and the ratification process of other EU investment agreements such as the one with Singapore.”

The ECJ is not bound by a recent opinion of the Advocate General advising on the compatibility of the agreement with EU law. The Court will soon rule on the issue in full court – illustrating the exceptional importance of the issue.

In a legal briefing, ClientEarth has flagged some of the most controversial points of the Advocate General’s reasoning, with which the Court might disagree. The legal briefing stated:

The AG’s whole approach is unfortunate. Not only does it run counter to settled case-law of the ECJ, it also constitutes a very politicised judgement where he uses an EU external action guiding principle as a decisive factor to decide upon the legality of the agreement.

By doing so, he delivers a flawed opinion designed to save the ICS.

Van Den Berghe added: “It is now up to the ECJ to decide if the ICS is compatible with EU law. We hope the Court will protect the rule of law and the powers of domestic courts.

“It remains to be seen whether the Court will follow his line of reasoning. Should the Court rule in favour of the ICS, it would not only go against settled case-law, but would also allow the EU to subject itself to a dispute settlement mechanism that empowers multinationals and rich individuals with additional rights.

“This would be in stark contrast with the fact that the EU decided not to be bound by the rulings of the European Court of Human Rights.”

Investment tribunals like ISDS or ICS are used by foreign investors to side-line domestic courts and sue governments over decisions that affect their investment, including policy brought in the public interest like phasing out nuclear power or tougher environmental regulations.

This controversial system is facing a huge issue of legitimacy; an ongoing petition against ISDS has already raised 500.000 signatures.