on the operation of Regulation (EU) No 912/2014 on the financial responsibility linked to investor-to-state dispute settlement under international agreements to which the European Union is party

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on the operation of Regulation (EU) No 912/2014 on the financial responsibility linked to investor-to-state dispute settlement under international agreements to which the European Union is party

1.Introduction

On 23 July 2014, the European Parliament and the Council adopted Regulation (EU) No 912/2014 establishing a framework for managing financial responsibility linked to investor-to-State dispute settlement tribunals established by international agreements to which the European Union is party (the “Financial Responsibility Regulation” or “FRR”). The legal basis for the FRR is Article 207 TFEU concerning the common commercial policy, of which foreign direct investment is a component.

The Commission is the Union institution in charge of administering the Financial Responsibility Regulation. Within the Commission, the responsible service is the Directorate General for Trade; the Legal Service is in charge of representing the Union during the dispute settlement proceedings and the possible subsequent stages of the litigation.

The Financial Responsibility Regulation sets out criteria for the determination of the respondent status and the allocation of financial responsibility between the Union and the Member States for treatment which may result in awards for monetary compensation further to investor-to-State dispute settlement proceedings.

Generally, financial responsibility is allocated to the entity responsible for the treatment that gives rise to compensation. This entails that the Union bears financial responsibility where the treatment concerned is afforded by an institution, body, agency or office of the Union, while a Member States bears financial responsibility when the treatment concerned is afforded by it. However, when a Member States acts in a manner required by EU law, for example by transposing an EU directive, the Union bears the financial responsibility insofar as the treatment concerned is required by EU law.

Concerning the respondent status, the rule is that generally the party which bears financial responsibility also acts as the respondent in a dispute. However, there are specific circumstances where the Union acts as the respondent even when the Member State bears the financial responsibility. This is for instance the case when: a Member State prefers the Union to act as the respondent (for example in view of technical expertise required in the dispute); the case also involves treatment afforded by a Member State and such treatment is required by EU law; similar treatment is subject to WTO dispute settlement proceeding and it is necessary to ensure consistency of argumentation.

The Financial Responsibility Regulation sets out arrangements to ensure that when the Union acts as the respondent in cases concerning treatment afforded by a Member State, the Member State concerned and the Union work in close cooperation in the conduct of dispute settlement proceedings, in accordance with the duty of sincere cooperation enshrined in Article 4(3) of the Treaty on European Union. This includes taking into account the defence and protection of the interests of the Member State concerned, exchanging timely information and relevant documents, engaging in frequent consultations, and participating in the delegation to the proceedings.

The Financial Responsibility Regulation also lays down procedures for Member States and the Commission to enter into arrangements for the payment of costs of litigation and of awards granting monetary compensation, in order to ensure that the resources of the EU are not, even temporarily, unduly burdened. In particular, the Commission and the Member State concerned are required to enter into an arrangement for periodic payment of costs and for the payment of any compensation. If financial responsibility is not accepted by the Member State concerned, the Commission can address a decision to it requesting it to provide the relevant amounts to the budget of the Union, together with applicable interests.

Finally, the FRR establishes procedures and requirements for settling cases when settlements are in the interest of the Union. For cases that involve only the financial responsibility of the Union, it is the Commission that decides on the settlement. When a case concerns also treatment afforded by a Member State, settling a dispute either requires the agreement of the Member State, or it can be decided by the Commission provided it has no financial or budgetary implications for the Member State concerned.

Throughout the various stages of a dispute, the Financial Responsibility Regulation imposes information duties on the Commission vis-à-vis the European Parliament and the Council, for instance when it receives from a claimant a request for consultation or a notice of intention to initiate dispute settlement proceedings.

2.Current scope of application of the Financial Responsibility Regulation

The Financial Responsibility Regulation applies to investor-to-State dispute settlement proceedings conducted under agreements to which the EU is a party. At present, pending the ratification and entry into force of agreements which contain an investor-to-State dispute settlement mechanism, e.g. the bilateral agreements with Canada (CETA), Singapore and Vietnam, the FRR effectively applies only to investor-to-State dispute settlement cases initiated against the EU under the Energy Charter Treaty (ECT). The Union has been a Contracting Party of the ECT since its ratification in 1998.

3.Cases initiated against the Union under the Energy Charter Treaty

To date, there has been one investment dispute settlement proceeding initiated against the Union under the Energy Charter Treaty. In addition, there have been a few requests for consultations received by the Union pursuant to Article 26 of the ECT, which have not so far advanced to the stage of formal litigation. All these proceedings are described in more detail below.

a.Claims by Prosisa and Risteel Corporation on the Spanish renewables support scheme (2015)

In 2015, the Commission received two requests for consultation pursuant to Article 26 of the ECT, respectively from the Swiss company Prosisa AG and the Dutch company Risteel Corporation BV. The Commission informed the European Parliament and the Council in accordance with Articles 4 and 7 of the Financial Responsibility Regulation on 7 October 2015.

Both companies had made investments in the photovoltaic and wind sectors and in the production of renewable energy with biomass in the territory of Spain, and their claims related to Spain’s decision to amend the support scheme for renewable energy. The companies had also in parallel launched proceedings against Spain. They essentially argued that the Commission has violated the fair and equitable treatment standard enshrined in Article 10 of the ECT by intervening before arbitration tribunals constituted under the ECT and by arguing that the ECT did not apply in the relationships between an EU Member State and an investor from another EU Member State.