Skip to main content
SpringerLink
Log in

Democratic Legitimacy and the Rule of Law in Investor-State Dispute Settlement under CETA

  • Chapter
  • First Online:
European Yearbook of International Economic Law 2017

Part of the book series: European Yearbook of International Economic Law ((EUROYEAR,volume 8))

Abstract

In recent years only, investor-state dispute settlement has come into the focus of public debate. In particular in Germany and Austria, but also in other EU Member States its democratic legitimacy is questioned. Arbitral tribunals, the argument goes, would intrude into the exercise of sovereign powers by democratically elected parliaments while the tribunals themselves would not possess a similar level of legitimacy. As a consequence, the European Parliament adopted a resolution on 8 July 2015 that it would not approve of an investment treaty which is based on the traditional model of international investment arbitration. This article analyses the fundamentals of legal legitimacy and applies them to the mechanics of investor-state dispute settlement. It argues that issues of legality and legitimacy must be seen in their interdependency. Insofar, the most outstanding deficits of investor-state dispute settlement are not of procedural but of substantive nature. Arbitral tribunals interpret and apply substantive standards under bilateral investment treaties which in most cases are too vague and, therefore, translate into too much power of the tribunals. In contrast thereto, the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States will considerably change the standards of international investment protection. It strengthens the rule of law in substantive and procedural terms which also translates into a higher level of democratic legitimacy.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 219.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 279.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 279.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    COM (2016) 443 final; COM (2016) 444 final.

  2. 2.

    European Commission, Joint statement: Canada-EU Comprehensive Economic and Trade Agreement (CETA), STATEMENT/16/446, 29 February 2016.

  3. 3.

    European Parliament resolution of 8 July 2015 containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) (2014/2228(INI)), para. 2(d)(xv).

  4. 4.

    See e.g. with respect to the WTO Benvenisti (2004), p. 343 et seq.; Krajewski (2001), p. 167 et seq.; Wouters et al. (2003), p. 182 et seq.

  5. 5.

    Figures available under http://ec.europa.eu/trade/policy/countries-and-regions/countries/canada/ (last accessed 1 March 2017).

  6. 6.

    See e.g. the contribution by Provost C and Kennard M, The obscure legal system that lets corporations sue countries, The Guardian, 10 June 2015.

  7. 7.

    Cf. the contributions in Waibel et al. (2010) and van Harten (2015). For a positive view Böckstiegel (2015), p. 1871, para. 41 et seq.

  8. 8.

    Griebel (2008), p. 144 et seq.; for a broad analysis see Tams (2007).

  9. 9.

    Cf. Federal Constitutional Court, 2 BvR 1368/16, CETA – Preliminary Injunction, judgment of 13 October 2016.

  10. 10.

    This classical insight is provided by Jellinek (1922), p. 184 et seq.; Kelsen (1925), p. 27 et seq.

  11. 11.

    Cf. Bodansky (1999), p. 601 et seq.; Stein (2004), p. 565.

  12. 12.

    Wolfrum (2011), para. 1.

  13. 13.

    Krajewski (2008), para. 12; for an even broader approach see Goldmann (2015), p. 359 et seq.

  14. 14.

    Krajewski (2008), para. 12.

  15. 15.

    See e.g. Franck (1988), p. 705 et seqq.

  16. 16.

    For this view see e.g. Benvenisti (2004), p. 348 et seq.

  17. 17.

    See Habermas (1998), p. 166 et seq.; Wheatley (2011), p. 535 et seq.

  18. 18.

    For the latter approach see e.g. Krajewski (2001), p. 169 et seq.; Bogdandy and Venzke (2012) p. 24.

  19. 19.

    This basis is still to be found in Permanent Court of International Justice, S.S. “Lotus” (France v. Turkey), PCIJ Reports Series A, No. 10 (1927), p. 18. Cf. also Bodansky (1999), p. 596 et seq.; Wolfrum (2011), para. 6.

  20. 20.

    For a theoretical account see Bogdandy (2004), p. 889 et seq.

  21. 21.

    Article 23(1) German Grundgesetz.

  22. 22.

    For a critical account cf. Wheatley (2011), p. 537: “not sufficient to explain the legitimacy and authority of political power”; also Bogdandy and Venzke (2012), p. 20: “static perspective”; Schill (2012), p. 144: “loss of control”.

  23. 23.

    From a legal point of view, the commonly used term “mandate” is not correct, as an international organization normally acts on its behalf and in its own name.

  24. 24.

    Cf. Bodansky (1999), p. 596 et seq.; Wolfrum (2011), para. 18; both with respect to the Security Council.

  25. 25.

    Cf. Kumm (2004), p. 918 et seq.

  26. 26.

    Wolfrum (2011), para. 23.

  27. 27.

    Lauterpacht (1933, 2011), p. 213.

  28. 28.

    Bogdandy and Venzke (2012), p. 17 et seq.

  29. 29.

    Cf. Lauterpacht (1933, 2011), p. 211: “The problem of the impartiality of the international judge is the Cape Horn of international judicial settlement”. See also Bogdandy and Venzke (2012), p. 32 et seq.

  30. 30.

    Bodansky (1999), p. 612.

  31. 31.

    For similar view Classen (2014), p. 615.

  32. 32.

    See e.g. Moravcsik (2000).

  33. 33.

    With respect to decisions of the ICJ see Oellers-Frahm (2012), para. 14.

  34. 34.

    Oellers-Frahm (2012), para. 8; cf. also Article 54(3) ICSID Convention.

  35. 35.

    Available under https://icsid.worldbank.org/ICSID/StaticFiles/basicdoc/basic-en.htm (last accessed 1 March 2017).

  36. 36.

    Ohler (2016), p. 18 et seq.

  37. 37.

    Cf. Tietje (2015), p. 3.

  38. 38.

    Article 37(2)(a) ICSID Convention.

  39. 39.

    Article 37(2)(b) ICSID Convention.

  40. 40.

    Schill (2012), p. 136 et seq.

  41. 41.

    Ohler (2015), p. 344; Schill (2012), p. 137; see also Classen (2014), p. 615.

  42. 42.

    Kleinheisterkamp (2015), p. 794 et seq.; Schill (2012), p. 137.

  43. 43.

    Article 8.39(1)(b) CETA.

  44. 44.

    Schill (2012), p. 137.

  45. 45.

    Jaeger (2016), p. 209.

  46. 46.

    Under Article 8.27(2) CETA, the CETA Joint Committee comprising representatives of both parties appoint the 15 members of the Tribunal.

  47. 47.

    Cf. Classen (2014), p. 615.

  48. 48.

    Article 14(1) ICSID Convention.

  49. 49.

    Lauterpacht (1933, 2011), p. 212.

  50. 50.

    Article 39 ICSID Convention.

  51. 51.

    Article 56(1) ICSID Convention.

  52. 52.

    Articles 57 and 58 ICSID Convention.

  53. 53.

    Article 8.30 CETA.

  54. 54.

    For an insightful comparison between WTO and ICSID see Pauwelyn (2015) who assumes an ideologically polarized pool of ICSID arbitrators.

  55. 55.

    According to No 3 Schedule of Fees (as of 1 July 2016) the daily rate per arbitrator is USD 3000.

  56. 56.

    Cf. Schill (2012), p. 150: “significant law-making powers”.

  57. 57.

    Cf. Henckels (2016); Kleinheisterkamp (2015), p. 794 et seq.; Miles (2016), p. 281 et seq.

  58. 58.

    Cf. CJEU, joined cases C-46/93 and C-48/93, Brasserie de Pȇcheur, ECLI:EU:C:1996:79, para. 85. See also Kleinheisterkamp (2014), p. 460.

  59. 59.

    Cf. Article 19(4) German Grundgesetz.

  60. 60.

    CJEU, case 5/71, Schöppenstedt/Council, ECLI:EU:C:1971:116, para. 3.

  61. 61.

    CJEU, case 543/79, Birke/Commission and Council, ECLI:EU:C:1981:265, para. 28.

  62. 62.

    Kleinheisterkamp (2014), p. 460.

  63. 63.

    See Jaeger (2016), p. 208 et seq.

  64. 64.

    For a different view see Bronckers (2015), p. 658 who argues in favor of a fail-safe system also amongst developed jurisdictions.

  65. 65.

    Cf. Kleinheisterkamp and Poulsen (2016), p. 533 referring to the Australia-US BIT of 2005; see also Jaeger (2016), p. 210.

  66. 66.

    Cf. Bronckers (2015), p. 658; for a different view see Kleinheisterkamp and Poulsen (2016), p. 538.

  67. 67.

    Cf. Federal Constitutional Court, 2 BvR 1368/16, CETA – Preliminary Injunction, judgment of 13 October 2016, para. 48.

  68. 68.

    Cf. Article 8.9(1) CETA.

  69. 69.

    Article 8.10 CETA.

  70. 70.

    Annex 8-A(3) CETA.

  71. 71.

    Article 8.27(5) CETA.

  72. 72.

    Article 8.27(1) CETA.

  73. 73.

    Article 26.1 CETA.

  74. 74.

    A minor exemption is provided by Articles 8.23(5) and 8.27(9) CETA.

  75. 75.

    Article 8.27(4) CETA.

  76. 76.

    Article 8.27(6) CETA.

  77. 77.

    Article 8.27(7) CETA.

  78. 78.

    Article 8.27(10) CETA.

  79. 79.

    Article 8.36(1) CETA.

  80. 80.

    Article 8.28 CETA.

  81. 81.

    Cf. e.g. Miles (2016) p. 289.

  82. 82.

    Article 8.31(3) CETA.

  83. 83.

    Hindelang (2015), Ohler (2015), Schill (2015).

  84. 84.

    CJEU, opinion 2/13, Accession to the ECHR, ECLI:EU:C:2014:2454, para. 174 et seq.; see also CJEU, opinion 1/09, European Patent Court, ECLI:EU:C:2011:123, paras. 67, 76 et seq.

  85. 85.

    CJEU, opinion 2/13, Accession to the ECHR, ECLI:EU:C:2014:2454, para. 179 et seq.

  86. 86.

    Hindelang (2015), p. 73; Ohler (2015), p. 345; Schill (2015), p. 382 et seq.

  87. 87.

    CJEU, opinion 2/13, Accession to the ECHR, ECLI:EU:C:2014:2454, para. 182; CJEU, opinion 1/91, European Economic Area, ECLI:EU:C:1991:490, paras. 40, 70; CJEU, opinion 1/09, European Patent Court, ECLI:EU:C:2011:123, para. 74.

  88. 88.

    CJEU, opinion 2/13, Accession to the ECHR, ECLI:EU:C:2014:2454, para. 183 et seq.

  89. 89.

    Critically about the factual pressure created by awards Hindelang (2015), p. 74 et seq.; Kerkemeyer (2016), p. 15.

  90. 90.

    Cf. Kokott and Sobotta (2016), p. 19.

  91. 91.

    On the problem of “proliferation of international courts and tribunals” see e.g. Buergenthal (2001); Kingsbury (1999).

  92. 92.

    Critically also Tietje (2015), p. 7.

  93. 93.

    Article 8.29 CETA.

References

  • Benvenisti E (2004) Welfare and democracy on a global level: the WTO as a case study. In: Benvenisti E, Nolte G (eds) The welfare state, globalization, and international law. Springer, Berlin, pp 343–369

    Chapter  Google Scholar 

  • Böckstiegel KH (2015) The future of international investment law – substantive protection and dispute settlement. In: Bungenberg M, Griebel J, Hobe S, Reinisch A (eds) International investment law. C.H. Beck, München, pp 1863–1872

    Google Scholar 

  • Bodansky D (1999) The legitimacy of international governance: a coming challenge for international environmental law? Am J Int L 93(3):596–624

    Article  Google Scholar 

  • Bogdandy A (2004) Globalization and Europe: how to square democracy, globalization, and international law. Eur J Int Law 15(5):885–906

    Article  Google Scholar 

  • Bogdandy A, Venzke I (2012) In whose name? An investigation of international courts’ public authority and its democratic justification. Eur J Int Law 23(1):7–41

    Article  Google Scholar 

  • Bronckers M (2015) Is investor-state dispute settlement (ISDS) superior to litigation before domestic courts?: an EU view on bilateral trade agreements. J Int Econ Law 18(3):655–677

    Article  Google Scholar 

  • Buergenthal T (2001) Proliferation of international courts and tribunals: is it good or bad? Leiden J Int Law 14(2):267–275

    Google Scholar 

  • Classen CD (2014) Die Unterwerfung demokratischer Hoheitsgewalt unter eine Schiedsgerichtsbarkeit. Europäische Zeitschrift für Wirtschaftsrecht 25(16):611–616

    Google Scholar 

  • Franck T (1988) Legitimacy in the international system. Am J Int Law 82(4):705–759

    Article  Google Scholar 

  • Goldmann M (2015) Internationale Öffentliche Gewalt. Springer, Berlin

    Book  Google Scholar 

  • Griebel J (2008) Internationales Investitionsrecht. C.H. Beck, München

    Google Scholar 

  • Habermas J (1998) Die postnationale Konstellation. Suhrkamp, Frankfurt/Main

    Google Scholar 

  • Henckels C (2016) Protecting regulatory autonomy through greater precision in investment treaties: the TPP, CETA, and TTIP. J Int Econ Law 19(1):27–50

    Article  Google Scholar 

  • Hindelang S (2015) Repellent forces: the CJEU and investor-state dispute settlement. Archiv des Völkerrechts 53(1):68–89

    Article  Google Scholar 

  • Jaeger T (2016) Zum Vorschlag einer permanenten Investitionsschiedsgerichtsbarkeit. Eur Secur 51(2):203–228

    Google Scholar 

  • Jellinek G (1922) Allgemeine Staatslehre, 3rd edn. Springer, Berlin

    Google Scholar 

  • Kelsen H (1925) Allgemeine Staatslehre. Springer, Berlin

    Google Scholar 

  • Kerkemeyer A (2016) Unionsrecht und internationales Investitionsschutzrecht auf Kollisionskurs. Europäische Zeitschrift für Wirtschaftsrecht 27(1):10–16

    Google Scholar 

  • Kingsbury B (1999) Is the proliferation of international courts and tribunals a systematic problem? N Y Univ J Int Law Polit 31(4):679–696

    Google Scholar 

  • Kleinheisterkamp J (2014) Financial responsibility in European international investment policy. Int Comp Law Q 63(2):449–476

    Article  Google Scholar 

  • Kleinheisterkamp J (2015) Investment treaty law and the fear for sovereignty: transnational challenges and solutions. Mod Law Rev 78(5):793–825

    Article  Google Scholar 

  • Kleinheisterkamp J, Poulsen L (2016) Investment protection in TTIP: three feasible proposals. In: Bungenberg M, Hermann C, Krajewski M, Terchechte JP (eds) European yearbook of international economic law, vol 7. Springer, Heidelberg, pp 527–541

    Google Scholar 

  • Kokott J, Sobotta C (2016) Investment arbitration and EU law. Camb Yearb Eur Leg Stud 18:3–19

    Article  Google Scholar 

  • Krajewski M (2001) Democratic legitimacy and constitutional perspective of WTO law. J World Trade 35(1):167–186

    Article  Google Scholar 

  • Krajewski M (2008) International organizations or institutions, democratic legitimacy. In: Wolfrum (ed) Max Planck encyclopedia of public international law, online edition

    Google Scholar 

  • Kumm M (2004) The legitimacy of international law: a constitutional framework of analysis. Eur J Int Law 15(5):907–931

    Article  Google Scholar 

  • Lauterpacht H (1933, 2011) The function of law in the international community. Oxford University Press, Oxford

    Google Scholar 

  • Miles K (2016) Investor-state dispute settlement: conflict, convergence, and future directions. In: Bungenberg M, Hermann C, Krajewski M, Terchechte JP (eds) European yearbook of international economic law, vol 7. Springer, Heidelberg, pp 273–308

    Google Scholar 

  • Moravcsik A (2000) The origins of human rights regimes: democratic delegation in postwar Europe. Int Organ 54(2):217–252

    Article  Google Scholar 

  • Oellers-Frahm K (2012) Article 94. In: Simma B, Khan DE, Nolte G, Paulus A (eds) The charter of the United Nations, 3rd edn. Oxford University Press, Oxford

    Google Scholar 

  • Ohler C (2015) Die Vereinbarkeit von Investor-Staat-Schiedsverfahren mit deutschem und europäischem Verfassungsrecht. JuristenZeitung 70(7):337–346

    Google Scholar 

  • Ohler C (2016) Demokratische Legitimation und rechtsstaatliche Bindung von Investor-Staats-Schiedsverfahren. In: Herrmann C, Bungenberg M (eds) Die gemeinsame Handelspolitik der Europäischen Union. Nomos, Baden-Baden, pp 118–134

    Google Scholar 

  • Pauwelyn J (2015) The rule of law without the rule of lawyers? Why investment arbitrators are from Mars and trade adjudicators from Venus. Am J Int Law 109(4):761–805

    Article  Google Scholar 

  • Schill S (2012) System-building in investment treaty arbitration and lawmaking. In: Bogdandy A, Venzke I (eds) International judicial lawmaking. Springer, Heidelberg, pp 133–177

    Chapter  Google Scholar 

  • Schill S (2015) Editorial: opinion 2/13 – the end for dispute settlement in EU trade and investment agreements? J World Invest Trade 16(3):379–388

    Article  Google Scholar 

  • Stein T (2004) Demokratische Legitimierung auf supranationaler und internationaler Ebene. Zeitschrift für ausländisches öffentliches Recht und Völkerrecht 64(3):563–570

    Google Scholar 

  • Tams C (2007) Is there a need for an ICSID appellate structure? In: Hofmann R, Tams C (eds) The international convention for the settlement of investment disputes: taking stock after 40 years. Nomos, Baden-Baden

    Google Scholar 

  • Tietje C (2015) Ein internationales Handels- und Schiedsgericht für CETA (und TTIP)?. Policy Papers on Transnational Economic Law, No. 42

    Google Scholar 

  • Van Harten G (2015) A parade of reforms: The European Commission’s latest proposals for ISDS. Osgoode Legal Studies Research Paper No. 21/2015

    Google Scholar 

  • Waibel M, Kaushal A, Chung L, Balchin C (eds) (2010) The backlash against investment arbitration. Kluwer Law International, The Hague

    Google Scholar 

  • Wheatley S (2011) A democratic rule of international law. Eur J Int Law 22(2):525–548

    Article  Google Scholar 

  • Wolfrum R (2011) Legitimacy in international law. In: Wolfrum R (ed) Max Planck encyclopedia of public international law, online edition

    Google Scholar 

  • Wouters J, De Meester B, Ryngaert C (2003) Democracy and international law. Neth Yearb Int Law XXXIV:137–198

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Friedrich-Schiller-University Jena, Carl-Zeiss-Strasse 3, 07743, Jena, Germany

    Christoph Ohler

Authors
  1. Christoph Ohler
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Christoph Ohler .

Editor information

Editors and Affiliations

  1. Faculty of Law, Saarland University, Saarbrücken, Germany

    Marc Bungenberg

  2. Faculty of Law, University of Erlangen-Nürnberg, Erlangen, Germany

    Markus Krajewski

  3. School of Law, University of Glasgow, Glasgow, United Kingdom

    Christian Tams

  4. Competition and Regulation Institute, Leuphana University of Lüneburg, Lüneburg, Germany

    Jörg Philipp Terhechte

  5. Faculty of Law and Criminal Sciences, University of Lausanne, Lausanne, Switzerland

    Andreas R. Ziegler

Rights and permissions

Reprints and permissions

Copyright information

© 2017 Springer International Publishing AG

About this chapter

Cite this chapter

Ohler, C. (2017). Democratic Legitimacy and the Rule of Law in Investor-State Dispute Settlement under CETA. In: Bungenberg, M., Krajewski, M., Tams, C., Terhechte, J., Ziegler, A. (eds) European Yearbook of International Economic Law 2017. European Yearbook of International Economic Law, vol 8. Springer, Cham. https://doi.org/10.1007/978-3-319-58832-2_8

Download citation

  • DOI: https://doi.org/10.1007/978-3-319-58832-2_8

  • Published:

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-58831-5

  • Online ISBN: 978-3-319-58832-2

  • eBook Packages: Law and CriminologyLaw and Criminology (R0)

Publish with us

Policies and ethics

Search

Navigation