Flexibility for FDI Screening on Broader Grounds Than ‘Security or Public Order’

Velten, Jens

doi:10.1007/978-3-031-05603-1_4

Jens Velten²⁶

Part of the book series: European Yearbook of International Economic Law ((EYIELMONO,volume 26))

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Abstract

In Chap. 3 the author turns to the question whether the EU and Member States may adopt FDI screening mechanisms that are broader than those circling around the notions of security and public order. To this end, he first assesses who in the EU has the competence to screen FDI on broader grounds than ‘security or public order’—the EU or its Member States. The author then examines the EU’s and Member States’ obligations to admit FDI to the internal market pursuant to EU primary law and International economic law. This includes an analysis of the EU’s and Member States’ obligations to admit FDI to their markets and, to the extent such obligation exists, of relevant grounds of exception to these obligations. More concretely, Chap. 3 discusses questions such as the delimitation of the freedom of capital movement and the freedom of establishment as well as a paramount ground of exception to both freedoms: the scope of Art 64(2) and (3) of the Treaty on the Functioning of the EU. It further gives an overview of EU obligations pursuant to International economic law, including a brief analysis of the EU-China Comprehensive Agreement on Investment, and then proceeds to submit an in-depth analysis of the WTO’s General Agreement on Trade in Services with regards to the EU’s flexibility to adopt FDI screening mechanisms. On this basis, Chap. 3 identifies policy options for FDI Screening mechanisms on broader grounds than ‘security or public order’. Their scopes differ according to the personal and substantial scope the FDI Screening mechanism may have. The author reaches the conclusion that these mechanisms must all compromise in one way or another on the extent to which EU and Member States concerns vis-à-vis foreign investors are met.

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Notes

1.
In this sense, ‘establishment’ is used in an untechnical way, neither referring to Art 49 TFEU, nor any specific notion of International economic law.
2.
Canada—Administration of the Foreign Investment Review Act, GATT Panel Report (7 February 1984) BISD 30S/140, para. 5.1, the only decision of a WTO adjudicating body where a cross-sector FDI Screening mechanism was at issue. The US challenged Canada’s practice to conclude investor agreements under the screening mechanism that stipulate performance requirements for the investor. Today, such performance requirements are prohibited under the TRIMs Agreement. See also Working Group on the Relationship between Trade and Investment, ‘Modalities for Pre-establishment Commitments Based on GATS-type, Positive List Approach’ (Note by the Secretariat) WT/WGTI/W/120, para. 2; Cottier and Schneller (2014), pp. 5–6.
3.
For the definitions in detail Sects. 2.4.1 and 2.4.2.
4.
This book will thus not specifically address a possible Member State competence for ‘national security’, ‘public policy or public security’, and ‘essential security interests’ pursuant to Art 4(2), sentences 2 and 3 TEU; Arts 65(1)(b) TFEU and 346(1)(b) TFEU. It is controversial whether these provisions allow Member States to take own measures in areas that fall under the Common commercial policy. See on Art 4(2), sentences 2 and 3 TEU, Art 65(1)(b) TFEU in favour of a carve-out from other EU competences Benyon (2010), p. 98; Dimopoulos (2011), p. 77; Schmitt (2013), p. 282; Bings (2014), p. 91; Obwexer (2015b), para. 10.
Arguing against Art 65(1)(b) TFEU as a ground of exception to EU competences from Art 207 TFEU, Puig (2013), pp. 158–159. Apparently in favour, the German government when adopting a prior version of the German FDI screening mechanisms in German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung), as amended as of 25 August 2021, secs 55–59, see German Federal Government (2008), Drucksache 16/7668, p. 3. The ECJ case law is inconsistent. Earlier judgments explicitly found that Art 36 EEC (now Art 36 TFEU) is a ground of exception for Member States to derogate from EU law, not a reservation of competence, see Case C-35/76 Simmenthal Spa v Ministero delle finanze [1976] EU:C:1976:180, para. 14; Case C-5/77 Tedeschi v Denkavit [1977] EU:C:1977:144, paras. 33–35; Case C-72/83 Campus Oil [1984] EU:C:1984:256, para. 32. In Opinion 2/15 EU-Singapore Free Trade Agreement [2017] EU:C:2017:376, paras. 100–101, 103, the ECJ seems to open a door to generally reserve Member States’ competence in the areas of ‘public policy or public security’. This may also be seen in light of the new identity clause in Art 4(2) TEU (formerly very narrow Art F(1) TEU 1992, and Art 6(3) TEU 1997). With a more detailed discussion, focusing on possible restrictions of the free movement of EU citizens pursuant to Art 21 TFEU, see Guastaferro (2012), pp. 290–299.
5.
The following will cite some ECJ judgments and scholar contributions that were issued prior to the Treaty of Lisbon. Accordingly, they cite EEC or EC, not TFEU provisions. Nevertheless, the following will only highlight cases in which the difference between EEC and EC on the one, and TFEU on the other hand are relevant to the conclusion drawn from the judgments and contributions. See also Chap. 3, n. 170.
6.
Sections 4.2.2 and 4.2.3 will show that FDI falls under the freedom of capital movement. For the purposes of this section, this result is presumed.
7.
See anti-circumvention rules that address investors who are already established in the EU, Art 3(6) Screening Regulation.
8.
EU-Singapore Free Trade Agreement (n. 4).
9.
Weiß (2020), para. 64.
10.
See FDI definition in Sect. 2.4.1. One may read Art 207(1) TFEU as requiring FDI to have a special relation to trade in goods or services (‘and the commercial aspects of intellectual property, foreign direct investment, the achievement of uniformity in measures of liberalisation [sic]’, emphasis added). The German and French version of Art 207(1) TFEU, however, demonstrate that the term ‘commercial aspects’ only qualifies intellectual property, not FDI. The German version reads: ‘und für die Handelsaspekte des geistigen Eigentums, die ausländischen Direktinvestitionen, die Vereinheitlichung der Liberalisierungsmaßnahmen’. In French the same provision reads: ‘et les aspects commerciaux de la propriété intellectuelle, les investissements étrangers directs, l’uniformisation des mesures de libéralisation’. See also Cottier and Trinberg (2015b), para. 60.
11.
EU-Singapore Free Trade Agreement (n. 4), para. 87.
12.
Settled case law, see Case C-414/11 Daiichi Sankyo and Sanofi-Aventis Deutschland [2013] EU:C:2013:520, para. 51; Case C-137/12 Commission v Council [2013] EU:C:2013:675, para. 57; EU-Singapore Free Trade Agreement (n. 4), paras. 36, 84.
13.
Schmitt (2013), pp. 152–153. See also Case C-411/06 Commission v Parliament and Council [2009] EU:C:2009:518, para. 62, in which the protection of health and environment from trade effects is considered part of the Common commercial policy. The fact that trade restrictive measures also fall under Art 207(1) TFEU is also demonstrated by numerous anti-dumping measures, e.g. on subsidized imports Regulation (EU) 2016/1036 of the European Parliament and of the Council of 8 June 2016 on protection against dumped imports from countries not members of the European Union [2016] OJ L 176/21; Regulation (EU) 2016/1037 of the European Parliament and of the Council of 8 June 2016 on protection against subsidised imports from countries not members of the European Union [2016] OJ L 176/55.
14.
The ECJ confirmed this view in a judgment on an international agreement that sought to create a single registration system for appellations of origin and geographical indications, Case C-389/15 Commission v Council (Revised Lisbon Agreement) [2017] EU:C:2017:798, paras. 70–71. Aim of the single registration system was to facilitate trade by creating a harmonized registration mechanism instead of distinct mechanisms in all member states of the treaty at issue.
15.
For the two possible FDI Screening mechanisms designs, see Sect. 2.4.3. This conclusion does not necessarily apply to the Screening Regulation, since it only provides Member States with options for FDI Screening mechanisms, without itself raising concrete barriers. On this, see e.g. Cremona (2020), pp. 43–45.
16.
With the same conclusion Tietje (2007), p. 8; Herrmann (2010), pp. 209–210; Hindelang and Maydell (2010), p. 72; Schill (2010), p. 520; Bungenberg (2011), p. 39; Schmitt (2013), p. 155; Weiß (2020), para. 43. Dismissing a sufficiently specific relation to trade, Günther (2018), p. 29 (but ultimately nevertheless in favour of Art 207(2) TFEU as the correct legal basis); Geiger (2013), pp. 83–84 (without much argumentation). Korte (2019), pp. 106–107, argues that the competence for FDI Screening mechanisms remains with the Member States. The FDI Screening mechanism’s centre of gravity lies on Art 64(2) and (3) TFEU, instead of Art 207(2) TFEU. According to Korte, Art 64(2) and (3) TFEU apply; and the EU has not exercised its competence entirely by adopting the Screening Regulation, thereby omitting a blocking effect.
17.
Indeed, even in areas of exclusive competence, the EU may empower the Member States to adopt own legal acts (Art 2(1) TFEU). On possible forms of empowerment see Calliess (2016a), para. 10; Nettesheim (2020), para. 19.
18.
Regarding the Screening Regulation, Herrmann (2019), pp. 462–463, argues that only the freedom of establishment applies, not the freedom of capital movement. Accordingly, Art 64(2) and (3) TFEU must also fail to apply. Contra Moberg and Hindelang (2020), pp. 1440–1442.
19.
Obwexer (2015a), para. 12; Korte (2019), p. 103.
20.
Bings (2014), p. 85, argues that Art 64(2) and (3) TFEU cover only market access, but not FDI protection after establishment. Similarly, Strik (2014), p. 30, who categorizes investment protection as falling under the freedom of establishment. Dimopoulos (2011), p. 84, argues that market access falls under the Common commercial policy, while investment protection is covered by Art 63(1) TFEU. Both views find no basis in the wide definition of restriction of capital movement within the meaning of Art 63(1) TFEU. For the ECJ’s jurisprudence on the notion of restriction see Chap. 3, n. 230.
21.
If correct, the Screening Regulation may be subject to an action for annulment pursuant to Art 263(2) TFEU, since it would have been based on the wrong legal basis. See Günther (2018), p. 18; Bast (2020), para. 30.
22.
Settled case law, see e.g. Case C-48/14 Parliament v Council [2015] EU:C:2015:91, para. 29, with further references.
23.
See e.g. Commission v Council (n. 12), para. 53, with further references: ‘If examination of that measure reveals that it pursues a twofold purpose or that it has a twofold component and if one of those is identifiable as the main or predominant purpose or component, whereas the other is merely incidental, that measure must be based on a single legal basis, namely that required by the main or predominant purpose or component.’
24.
On this issue in detail see Cremona (2020), pp. 34–50, 53–54. She argues that the harmonization of Member State public order or public policy interests must (also) be based on an internal market competence, citing as an example Directive 2004/38/EC of the European Parliament and of the Council of 29 April 2004 on the right of citizens of the Union and their family members to move and reside freely within the territory of the Member States [2004] OJ L 158/77, arts 27–33. She goes on to argue that in the realm of the Common commercial policy this might require a dual legal basis together with Art 207(2) TFEU.
25.
Referring to the internal market purpose, on the one hand, and the external trade purpose, on the other hand, misses the purpose of Arts 63, 64(2), (3), 207(2) TFEU anyway. Art 207(2) TFEU also encompasses trade-restrictive measures, and Art 63(1) TFEU, due to its erga omnes effect, is also about external policies. The grounds of exception in Arts 64(2) and (3) TFEU want to equip the EU with flexibility vis-à-vis capital movement from foreign States. Bröhmer (2016b), para. 2; Ress and Ukrow (2020b), para. 4. For a more detailed analysis of the object and purpose of Art 64 TFEU, see Sect. 4.2.5.1. Clostermeyer (2011), pp. 102, 108, 114–116, differentiates between both competences according to the measure type. Contractual trade policy with third countries falls under Art 207(1) TFEU, while autonomous measures in ‘non-economic areas’ fall under the internal market competence pursuant to Arts 63(1), 64(2), (3) TFEU. Schill (2019), pp. 107–108, seems to argue that capital restricting measures to protect Union and Member State interests fall under Art 64(2) and (3) TFEU. Nevertheless, he claims that the Screening Regulation falls under Art 207(2) TFEU, since it is part of the EU’s overall trade strategy to achieve more favourable treatment of EU investors in third countries.
26.
Müller-Ibold (2010), p. 113; Bings (2014), pp. 87–89, opine for a parallelism of Arts 207(2), and 63 (1), 64 (2) and (3) TFEU. However, they omit discussing the resulting conflict of divergent competences and legislative procedure. Seemingly of the same opinion, Strik (2014), pp. 83–85.
27.
Benyon (2010), p. 83; Schmitt (2013), pp. 279–280.
28.
Addressing, but rejecting this argument Clostermeyer (2011), p. 102; Geiger (2013), p. 78.
29.
Benyon (2010), p. 83; Cottier and Trinberg (2015b), paras. 64–65; Weiß (2020), para. 40.
30.
With the same conclusion Günther (2018), p. 27.
31.
Cottier and Trinberg (2015a), para. 2; Günther (2018), p. 31.
32.
Cottier and Trinberg (2015b), para. 50. See e.g. Section 8.4 CETA and Section 8.8-12 EU-Singapore Agreement addressing market access for establishments of foreigners, of which the definition encompasses FDI, but is different than in Art 49 TFEU.
33.
Schmitt (2013), pp. 280–281; Cottier and Trinberg (2015b), para. 65. Insofar, the principle of interpreting exclusive EU competences restrictively (see Calliess (2016b), para. 14), must stand back behind the purpose of a unified Common commercial policy.
34.
Also in favour of an exclusive EU competence for FDI Screening mechanisms, but without taking the special procedural rules of Art 64(3) TFEU into account, Cottier and Trinberg (2015b), Art 207 AEUV, para. 65; Günther (2018), p. 31; Weiß (2020), paras. 40, 43; and without addressing Art 64(2) and (3) TFEU Tietje (2007), p. 8; Herrmann (2010), p. 209; Bungenberg (2011), p. 39. Puig (2013), pp. 150–152, argues that the internal market competence applies to the extent Art 64(2) and (3) TFEU apply. This should avoid deriving these provisions of their meaning. The same result is achieved by the approach chosen here when still requiring the special legislative procedure pursuant to Art 64(3) TFEU. In favour of a dual legal basis of Arts 207(2) and 64(2) TFEU, Moberg and Hindelang (2020), p. 1445.
35.
See also Tietje (2009), p. 14. One may therefore describe Art 64(2) and (3) TFEU as a condition to exercise the Common commercial competence in Art 207(2) TFEU (‘Wahrnehmungskompetenz’), see Nettesheim (2009), p. 391. For a detailed discussion of whether FDI Screening mechanisms constitute a step backwards in liberalization, see Sect. 4.2.5.
36.
Both notions of restriction are settled case law for Art 49 TFEU, see e.g. Case C-563/17 Associação Peço a Palavra and Others [2019] EU:C:2019:144, para. 54.
37.
This notion of restriction is settled case law for Art 63(1) TFEU, see e.g. Joined Cases C-52 and 113/16 SEGRO [2018] EU:C:2018:157, para. 65.
38.
On the definition of Case 1 and 2 of FDI Screening mechanisms see Sect. 2.4.3.
39.
For the definition of FDI and Foreign investors as well as the differences between the latter and the notion of EU-established investor in Art 54(1) TFEU, see Sect. 2.4.2.
40.
The following will cite a number of ECJ judgments and scholar contributions that were issued prior to the Treaty of Lisbon. Accordingly, they cite EEC or EC, not TFEU provisions. Nevertheless, the following will only highlight cases in which the difference between EEC and EC on the one, and TFEU on the other hand are relevant to the conclusion drawn from the judgments and contributions. See also Chap. 3, n. 170 and in this chapter n. 5.
41.
Terhechte (2020), para. 40.
42.
Pache (2015), para. 44.
43.
This is accordance with the vast majority of case law and literature. On the freedoms of capital movement and establishment, the most relevant in the FDI screening context, see e.g. Case C-247/08 Gaz de France - Berliner Investissement [2009] EU:C:2009:600, para. 53. On Arts 34–35 TFEU Joined Cases C-154 and 155/04 National Association of Health Stores and Others [2005] EU:C:2004:848, para. 47; Case C-549/15 E.ON Biofor Sverige [2017] EU:C:2017:490, para. 45. Generally, see e.g. Mortelmans (2002), p. 1337; Sørensen (2011), p. 340; Forsthoff (2020a), para. 131. Zazoff (2011), in particular p. 229, argues that the EU is exceptionally bound by the Fundamental freedoms when acting to positively harmonize and liberalize the internal market.
44.
Syrpis (2015), pp. 467–468.
45.
E.g. acceptance regime for vegetables according to a set catalogue of vegetable species as promoting trade, Case C-59/11 Association Kokopelli [2012] EU:C:2012:447, para. 81.
46.
See e.g. Case C-491/01 British American Tobacco (Investments) und Imperial Tobacco [2002] EU:C:2002:741, paras. 122–123; National Association of Health Stores and Others (n. 43), paras. 46, 50 (both on Art 34 TFEU). See also Syrpis (2015), p. 468, who cites Fritzsche (2010), p. 380, to demonstrate that the ECJ’s approach to review such discretion is still inconsistent.
47.
This is the largely prevailing opinion. Nevertheless contra Kingreen (2016), para. 34.
48.
Herz (2014), p. 39, who rightly emphasizes that the freedom of capital movement nevertheless also includes the subject behind the capital movement in the protection.
49.
Art 54 TFEU uses the term company and firm. The following will use the term company as umbrella term.
50.
Cf definition of foreign and EU investors in Sect. 2.4.2.
51.
Widely prevailing opinion in case law and among scholars, see Joined Cases C-504 and 613/16 Deister Holding [2017] EU:C:2017:1009, para. 84; as well as Bayer and Ohler (2008), pp. 20–21; Korte (2016b), para. 12; Tiedje (2015b), paras. 23–24; Ego (2017), para. 24; Forsthoff (2020c), para. 22. Smit (2012), pp. 365–366, argues that both the primary and secondary establishment must be ‘situated’ in the territory of a Member State. If this relates to the below discussed aspect of ‘established’ within the meaning of Art 49(2) TFEU, this is correct.
52.
The following terms SPVs that fulfil the requirements in Art 54(1) TFEU as EU SPVs.
53.
Jung (2019), paras. 16–17. Contra Tiedje (2015b), para. 30, who reads the requirement of a ‘real and continuous link’ into Arts 54 and 49(1) TFEU, see n. 61, 58. He thus nevertheless reaches the same result.
54.
On the definition of establishment within the meaning of Art 49(1) TFEU, see Sect. 4.2.3.2.
55.
This approach is arguably the prevailing opinion in literature, see Tiedje (2015a), para. 40; Ego (2017), paras. 34–36; Müller-Graff (2018a), paras. 23–24; Herrmann (2019), p. 440; Forsthoff (2020b), para. 63. See also Herz (2014), p. 51; Jung (2019), paras. 17–18. Of course, an M&A FDI only constitutes a secondary establishment if the acquiring company obtains a shareholding that gives the investor sufficient influence on the target. For a detailed discussion of the freedom of establishment’s substantial scope, in particular the necessary level of influence, see Sect. 4.2.3.2.
56.
Lübke (2006), pp. 204–205; Forsthoff (2020b), para. 63.
57.
Lübke (2006), pp. 204–205.
58.
This fundamental question is discussed under the notion of ‘genuine establishment’. Accordingly, genuine economic activity is sometimes considered as a requirement for the substantial scope of the freedom of establishment, see Case C-196/04 Cadbury Schweppes und Cadbury Schweppes Overseas [2006] EU:C:2006:544, para. 54; Case C-378/10 VALE [2012] EU:C:2012:440, para. 34. Other judgments emphasize that pursuing a genuine economic activity is precisely not a precondition to Art 49 TFEU, see Case C-212/97 Centros [1999] EU:C:1999:126, paras. 29–30; Case C-208/00 Überseering [2002] EU:C:2002:632, paras. 48, 73; Case C-167/01 Inspire Art [2003] EU:C:2003:512, para. 139; Case C-106/16 Polbud - Wykonawstwo [2017] EU:C:2017:804, paras. 40–42. For scholar contributions see e.g. Kindler (2012), p. 888; Roth (2012), p. 1744; Ego (2017), para. 29; Jung (2019), para. 16; Forsthoff (2020b), paras. 24–25.
59.
In these cases, founding the SPV constitutes the primary establishment, even if a company that does not fulfil Art 54(1) TFEU is founder and does thus not fall under the freedom of establishment. Company transformations or changing a company’s registered seat would, however, constitute a primary establishment, Ego (2017), para. 34.
60.
Jung (2019), para. 17; Forsthoff (2020c), para. 24.
61.
Business activity is a broad term. A company may e.g. be considered having business activities in the EU if it undertakes considerable exports or FDI in the internal market; cf Tiedje (2015b), para. 29, who uses these criteria to substantiate the requirement of a genuine economic activity (see n. 58).
62.
Others favour a positive definition of ‘established in the EU’, see Lackhoff (2000), p. 197; Frenz (2012), paras. 2301, 2298; Tiedje (2015b), paras. 29–31. This approach, however, often collides with the requirement of a genuine business activity to qualify as an establishment (see n. 58). Müller-Graff (2018a), paras. 31–32, e.g. draws the connection to genuine economic activity. The position of AG La Pergola in Case C-212/97 Centros [1998] Opinion of AG La Pergola, EU:C:1998:380, para. 12, remains unclear. He substantiated the criterion ‘principal establishment … outside the Community’ with the requirement of an ‘effective and continuous link with the economy of a Member State’. Essentially, both approaches may be boiled down to the controversy around the correct interpretation of the notion ‘real and continuous link’ as used by General Programme for the abolition of restrictions on freedom of establishment [1962] OJ L 36/7; see Forsthoff (2020c), para. 24, on the negative definition, and Frenz (2012), para. 2301, n. 314; Tiedje (2015b), para. 30; Müller-Graff (2018a), para. 31, on the positive definition. The discussion is also closely related to the discussion on genuine business activity as a requirement for the freedom of establishment (see n. 58) as well as the problem of misusing the freedom of establishment by ‘wholly artificial arrangements which do not reflect economic reality’; see e.g. Joined Cases C-398 and 399/16 X [2018] EU:C:2018:110, para. 46. For scholar contributions e.g. Ringe (2011); Tridimas (2011); Saydé (2014), p. 138; Forsthoff (2020a), paras. 302–323; Klöpfer (2016).
63.
For this categorization see Terhechte (2020), para. 40. In particular, the (undistorted) competition is therefore not only an objective, but also an integral part of the internal market, as shown by Protocol (No 27) on the Internal Market and Competition shows, Schröder (2018), para. 24. Hence, the objective of a common internal market is at the interface between Fundamental freedoms and EU competition law, O’Keeffe and Bavasso (2000), p. 543.
64.
Case C-26/62 Van Gend en Loos [1963] EU:C:1963:1, pp. 12–13.
65.
Bayer and Ohler (2008), p. 21; Rauber (2019), p. 95.
66.
Bognar (1997), pp. 248–249; Wolff (2009), p. 141.
67.
In favour of Member States as beneficiaries Storr (2001), pp. 273, 300; Crones (2002), p. 27. See also Ehlers (2014), paras. 46–47, who argues that Art 54(2) TFEU requires a legally structured organization. Contra Member States as beneficiaries of the Fundamental freedoms Bognar (1997), pp. 248–249; Bayer and Ohler (2008), p. 20; Wolff (2009), pp. 140–141; Rauber (2019), pp. 97–98. See also Hindelang (2009), p. 207. In contrast to Wolff’s interpretation, Case C-174/04 Commission v Italy [2005] Opinion of AG Kokott, EU:C:2005:138, para. 23, does not necessarily imply that the Fundamental freedoms exclude Member States from their personal scope. At issue were public undertakings on which measures were imposed by a Member State other than the Member State controlling the public undertaking. Therefore, she argued, beneficiary and addressee of the Fundamental freedom did not coincide in the same person, and the public undertaking could invoke the freedom of capital movement. Ohler (2002), Art 56 EGV, para. 228, argues that the ECJ has left it open whether Member States may invoke Fundamental freedoms. The ECJ’s judgment he cites to underpin his argument, however, deals with the question to what extent Member States are bound by the Fundamental freedoms (Case C-78/98 Commission v Belgium [2000] EU:C:2000:497, paras. 20–25).
68.
For this definition of Fundamental freedoms see Cremer (2015), p. 40; Frenz (2016), para. 218.
69.
Similarly on the freedom of establishment Rauber (2019), pp. 97–98.
70.
For categorizing the TFEU competition law as means to complete the internal market, see Terhechte (2020), para. 40.
71.
See e.g. Mestmäcker and Schweitzer (2012), paras. 11, 16–22; Schröter et al. (2015), paras. 84–88.
72.
Member States and their subdivisions (‘Gebietskörperschaften’) are not ‘formed in accordance with the law of a Member State’ within the meaning of Art 54(1) TFEU, but by their constitution, see with the same conclusion Rauber (2019), pp. 97–98. In Germany e.g. not only the Federal State as such, but also the Bundesländer as well as municipalities and their legal associations (‘Landkreise’, ‘Bezirke’) are part of the State and thus excluded from the scope of Art 54(2) TFEU; with a similar conclusion Bayer and Ohler (2008), p. 20, (‘mittelbare Staatsverwaltung’); Forsthoff (2020c), para. 12.
73.
For categorizing the freedom of services as object- and person-related, see Kluth (2016), paras. 1–2; Randelzhofer and Forsthoff (2020), para. 4. Another provision in the realm of the freedom of services is Art 56(1) TFEU (‘nationals of Member States’).
74.
Even the genesis of the seemingly clearly object-related freedom of capital movement may provide arguments against Member States as beneficiaries of the Fundamental freedoms. Originally, Art 67(1) EEC read ‘restrictions on the movement of capital belonging to persons resident in Member States’ (emphasis added). In the same vein, Art 1(1) of the Directive on Capital movement provides ‘restrictions on movements of capital taking place between persons resident in Member States’. Accordingly, both legal acts distinguished between Member States and market actors. By adopting Art 73b EEC, today Art 63(1) TFEU, Member States only sought to eliminate the principle that beneficiaries of the freedom of capital movement must be EU residents; see Wojcik (2015a), para. 10.
75.
This is consensus among ECJ and scholars, regardless of the precise delimitation between State und public undertaking, Case C-174/04 Commission v Italy [2005] EU:C:2005:350, para. 32 (on the freedom of capital movement); Atomausstieg, German Federal Constitutional Court (Bundesverfassungsgericht) Judgment [2016] 1 BvR 2821/11, BVerfGE 143, 246, para. 195; Badura (1997), p. 299; Manthey (2001), p. 105; Storr (2001), pp. 298–300; Lübke (2006), p. 157; Weller (2008), p. 863; Clostermeyer (2011), p. 179; Kainer (2015), para. 26; Ruthig and Storr (2015), p. 55; Müller-Graff (2018b), para. 5.
76.
To be sure, this conclusion regarding person-related Fundamental freedoms respects the principle of neutrality on state ownership as laid down in Art 345 TFEU. Member States may still choose to conduct certain activities in public, not privatized manners, and rely on the Fundamental freedoms (Case C-646/15 Trustees of the P Panayi Accumulation & Maintenance Settlements [2016] Opinion of AG Kokott, EU:C:2016:1000, paras. 23–24. In the realm of the freedoms of establishment and services, this is demonstrated by Art 54(2) TFEU (for the freedom of services in conjunction with Art 62 TFEU). Pursuant to this provision, a public undertaking is also sufficiently separate from the Member State if the ‘entity …, under national law, possesses rights and obligations that enable it to act in its own right within the legal order concerned, notwithstanding the absence of a particular legal form’ (Case C-646/15 Trustees of the P Panayi Accumulation & Maintenance Settlements [2017] EU:C:2017:682, para. 29). Key criterion for a separate entity is thus the capability to act distinctly from the Member State, not privatization. Member States therefore remain free in their decision to nationalize or privatize their activities in order to benefit from Fundamental freedom protection (Wolff (2009), pp. 138–139, citing Case C-174/04 Commission v Italy [2005] Opinion of AG Kokott, EU:C:2005:138, paras. 24–25).
77.
Bognar (1997), p. 248; Bayer and Ohler (2008), p. 20; Hindelang (2009), p. 207; Wolff (2009), p. 141; Ress and Ukrow (2020a), para. 120. Without citing this argument, also Wojcik (2015a), para. 10.
78.
Proelss (2018b), para. 16.
79.
See n. 66.
80.
Art 54(2) TFEU also excludes all regional subdivisions of States as created by the constitution. This follows from the wording of Art 54(2) TFEU: ‘formed in accordance with the law of a Member State’ (see n. 72). Some scholars deal with the entire issue of foreign States and public undertakings as beneficiaries of the Fundamental freedoms when defining non-profit companies in the realm of Art 54(2) TFEU, see e.g. Manthey (2001), pp. 111–112; Clostermeyer (2011), pp. 178–179; Forsthoff (2020c), para. 12. Also explicitly in favour of defining the personal scope of the freedom of capital movement in accordance with Art 54(2) TFEU, Ehlers (2014), paras. 46–47; Gramlich (2017), para. 14.
81.
In addition, the argument of Arts 34 and 36 VCLT is only valid for States; not for (public) entities that the VCLT considers sufficiently distinct from States (Proelss (2018a), para. 12). The delimitation of State and undertaking is controversial, see with a presentation of positions and arguments, e.g. Dereje (2015), in particular pp. 88ff, 198ff. In the context of FDI screening, Bayer and Ohler (2008), p. 21, argue that States include all legally non-distinct divisions of States, as well as undertakings that exercise public functions or rights. The discussion is similar to the controversy on the delimitation of governmental and non-governmental organizations within the meaning of Art 34 ECHR, see Islamic Republic of Iran Shipping Lines v Turkey, ECHR Judgment [2007] Case 40998/98, 2007-V ECHR 327, paras. 78–81. Given the here chosen focus on the argument derived from Art 54(1) TFEU, a further discussion of the definition of public undertakings in international law is omitted.
82.
It may seem appropriate to also cite Art 107(1) TFEU as another functional argument. However, this provision prohibits state aid to all undertakings, public and private. As a result, Art 107(1) TFEU would only allow the conclusion that every foreign undertaking would be excluded from the personal scope of the Fundamental freedoms, since they may benefit from state aid. This conclusion, however, would reach too far. The alternative conclusion that only those undertakings that have in fact received state aid are excluded from the freedoms’ personal scope would also be flawed. EU undertakings that have benefited from state aid may also still invoke their Fundamental freedoms.
83.
Settled ECJ case law Case C-49/07 MOTOE [2008] EU:C:2008:376, para 21; Case C-74/16 Congregación de Escuelas Pías Provincia Betania [2017] EU:C:2017:496, para. 41.
84.
See e.g. Mestmäcker and Schweitzer (2012), paras. 37–42; Klotz (2015), paras. 9–12. The element of influence derives from Commission Directive 2006/111/EC of 16 November 2006 on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings [2006] OJ L 318/17. Transparency Directive, art 2(b), sentence 1 defines an undertaking as public if ‘the public authorities may exert directly or indirectly a dominant influence by virtue of their ownership of it, their financial participation therein, or the rules which govern it’. Art 2(b), sentence 2 clarifies that dominant influence means a majority influence, in particular by majority of voting rights.
85.
At the same, the TFEU deems undertakings on which a States exerts influence below the threshold of dominant influence to pose no, or a sufficiently low risk to competition. Therefore, these undertakings fall in the personal scope of the Fundamental freedoms, even if influenced by foreign States.
86.
See n. 63.
87.
Terhechte (2020), para. 41.
88.
For the metaphor of ‘the other side of the same coin’, see Commission v Italy [2005] Opinion of AG Kokott (n. 76), para. 25. Adopting this metaphor Kainer (2015), para. 26. Similarly, Burgi (1997), p. 298; Bayer and Ohler (2008), pp. 17–18, 21; Clostermeyer (2011), p. 179. Contra Storr (2001), p. 293, who argues that Art 106(1) TFEU (on Art 86(1) EEC) only provides a negative principle of not favouring public ‘their’ public undertakings over public undertakings of other Member States and private undertakings. The provision would, however, not make any positive claim to grant rights to public undertakings.
89.
See also Schweitzer (2011), p. 92, without the here proposed reservation.
90.
Storr (2001), p. 285, rightly points out that every State action, and thus every action of public undertakings, must by law serve the public interest.
91.
Taking foreign public ownership into account when assessing possible grounds of exception to the Fundamental freedoms is no adequate alternative to the approach proposed here; suggesting this approach Bayer and Ohler (2008), p. 21. This alternative solution would pose the burden on Member States to justify the restrictions of foreign public undertaking activities. It would also neglect the main reason why Member State public undertakings benefit from the fundamental reasons that does not apply to third-foreign public undertakings: Art 106 TFEU.
92.
Wolff (2009), p. 139, who nevertheless goes on to exclude from the freedom of capital movement transactions with foreign States or state funds that may be instrumentalized by foreign States.
93.
Wolff (2009), p. 139; Clostermeyer (2011), p. 178. Commission v Italy [2005] (n. 75), para. 32, seems to support the argument of a neutral wording, but the ECJ had to deal with Member States, not foreign public undertakings.
94.
A different conclusion applies only if the limited personal scope also constitutes a general exception to the Fundamental freedom at issue. For a detailed discussion see Sect. 4.2.2.3.
95.
Wolff (2009), p. 143 (‘Bereichsausnahme’). For the instruments of Golden shares and other state rights in FDI targets, a policy alternative to FDI screening, Art 345 TFEU may constitute a general exemption from the Fundamental freedoms. See e.g. Joined Cases C-105 to 107/12 Essent and Others [2013] EU:C:2013:677, para. 53 (not as separate ground of justification, but as an overriding reason in the public interest). In favour of Art 345 TFEU as a ground of exemption (‘Bereichsausnahme’), Lübke (2006), pp. 349–352. Wolff (2009), pp. 131–136, argues that Art 345 TFEU only exempts the decision for or against privatization from the Fundamental freedoms’ scope. See also recently with a summary of the discussion and in favour of Art 345 TFEU as an overriding reason in the public interest, Haraldsdóttir (2020), pp. 19–21 (interpreting case law as following the ‘retained powers formula’).
96.
On the threshold that defines a shareholding as establishment within the meaning of Art 49 TFEU, see Sect. 4.2.3.2.
97.
Case C-436/00 X and Y [2002] EU:C:2002:704, paras. 35–38; Case C-268/03 De Baeck [2004] EU:C:2004:342, paras. 20–21. See also Lübke (2006), p. 208; Herz (2014), pp. 183–184 (positive and negative dimension of freedom of establishment must be protected).
98.
Similarly, Herz (2014), p. 184.
99.
With this argument in the realm of the freedom of capital movement, Wolff (2009), p. 143.
100.
See introduction to Sect. 4.2.2.2.
101.
In favour Wolff (2009), p. 143. Contra Ohler (2002), Art 56 EGV, p. 234, (regarding Member States), and apparently Hindelang (2009), pp. 206–207 by emphasizing the indirect protection of foreign investors.
102.
See e.g. Case C-271/09 Commission v Poland [2011] EU:C:2011:855, paras. 40–42, in which the ECJ rejects a ‘non-economic’ activity based on a narrow definition. Generally for a definition of non-profit, e.g. Storr (2001), pp. 276–282.
103.
For this argument see Sect. 4.2.2.2.3.
104.
For the definition of FDI for the purposes of this book, see Sect. 2.4.1.
105.
Indeed, the delimitation of both freedoms will nevertheless be important at the level of individual FDI cases. If an FDI is prohibited based on an FDI Screening mechanism, the investor may invoke his Fundamental freedoms as a defence before courts. The delimitation of the freedoms of capital movement and establishment will decide over the investor claim’s success.
106.
For a detailed analysis of the cross-border element, see Spies (2015), pp. 60–65.
107.
Lübke (2006), pp. 156, 158, 160. Critical Herz (2014), pp. 39–40, who cites Ohler (2006), p. 692, to argue that the distinction between person- and object-related Fundamental freedoms is overrated. According to Herz, Art 63(1) TFEU obviously also took into account the person behind the capital movement. Nevertheless, the purpose of the freedom of capital movement is focused on the object capital, not the person behind. The freedom of capital’s purposes of effective allocation of capital and a functioning and stable monetary union (see in more detail in Sect. 4.2.3.3.2) show that the free movement of the object capital is the freedom’s prime purpose. The distinction of object- and person-related Fundamental freedoms emphasizes this purpose.
108.
Bröhmer (2016a), para. 10.
109.
Lübke (2015), paras. 26, 31. Sceptical on the criterion of one-sidedness Frenz (2012), para. 3590.
110.
Bröhmer (2016a), para. 10.
111.
Ress and Ukrow (2020a), para. 131.
112.
The ECJ used this criterion for delimiting the freedom of capital movement from other Fundamental freedoms, see Joined Cases C-286/82 and 26/83 Luisi and Carbone v Ministero dello Tesoro [1984] EU:C:1984:35, para. 21; Case C-308/86 Lambert [1988] EU:C:1988:405, para. 10. Today, the ECJ cites Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty [on the former European Communities Treaty] (Capital Movement Directive) [1988] OJ L 178/5, for defining capital movement, see e.g. Case C-452/04 Fidium Finanz [2006] EU:C:2006:631, paras. 41–42; Case C-317/15 X v Staatssecretaris van Financiën [2017] EU:C:2017:119, para. 27. Case C-318/07 Hein Persche [2008] Opinion of AG Mengozzi, EU:C:2008:561, paras. 29–30, rightly points out that the ECJ did never intend for the subjective criterion of investment or remuneration to exhaustively define capital movement within the meaning of Art 63(1) TFEU.
113.
See for a summary of these positions Herz (2014), p. 38. Ego (2017), para. 690, additionally demands that capital movement must be more than a single transaction of goods and services. Kotthaus (2012), pp. 33–34, rightly points out that this consideration simply excludes the remuneration for goods and services from the substantial scope of the freedom of capital movement, but is no constitute definitory element of capital movement.
114.
Capital Movement Directive (n. 112). Its status as guidance for defining capital movement is settled case law, see n. 151.
115.
For the definition of secondary establishment see Sect. 4.2.2.1.2.
116.
Tiedje (2015a), para. 1.
117.
Lübke (2006), p. 158. For a critique of the distinction between person- and object-related Fundamental freedoms, see Herz (2014); Ohler (2006), n. 107.
118.
Case C-221/89 Factortame [1991] EU:C:1991:320, para. 20; Cadbury Schweppes und Cadbury Schweppes Overseas (n. 58), para. 54; VALE (n. 58), para. 34.
119.
VALE (n. 58), para. 34, with further references to case law. On the notion of a genuine economic activity as a—disputed—general requirement for an establishment see n. 58.
120.
Case C-55/94 Gebhard [1995] EU:C:1995:411, para. 25, in the broader context of delimiting the freedom of establishment to the free movement of workers and services.
121.
Tiedje (2015c), para. 4.
122.
See Tiedje (2015a), para. 62; Müller-Graff (2018a), para. 13; Forsthoff (2020b), para. 22. All definition criteria presented in this paragraph may be seen as following directly from the literal meaning of Art 49 TFEU (‘activities as self-employed persons’). They are thus not simply negative criteria to delimit the freedom of establishment from other Fundamental freedoms. Nevertheless, many scholars define establishment by delimitation only, see e.g. Ego (2017), para. 27; Müller-Graff (2018a), para. 11.
123.
See Sect. 4.2.2.1.2.
124.
The general concept of misusing EU law is more relevant for other EU companies as well as when circumventing secondary law. For case law and scholar contributions on this concept; see n. 62.
125.
See e.g. Lübke (2006), para. 43.
126.
For the notion of EU and Non-EU Company see Sect. 4.2.2.1.2.
127.
Associação Peço a Palavra and Others (n. 36), para. 43 (emphasis added). This is settled case law, based on Case C-251/98 Baars [2000] EU:C:2000:205, para. 22.
128.
See Sect. 4.2.2.2.3, n. 84.
129.
This is the prevailing interpretation of the ECJ’s case law in literature, see e.g. Kemmerer (2010), p. 170; Smit (2012), pp. 52–54; Geiger (2013), p. 136; Herz (2014), p. 246; Patzner and Nagler (2014), p. 732; Lübke (2006), para. 106; Spies (2015), pp. 435–436; Bröhmer (2016a), para. 31; Hindelang and Hagemeyer (2017), p. 885; Forsthoff (2020a), para. 101. Only Müller-Graff (2003), p. 936; Weller (2008), p. 862, demand a 50% shareholding, or, alternatively, additional contractual arrangements that guarantee a similar level of control. The ECJ has emphasized the difference between control and definite influence, see ia Case C-81/09 Idryma Typou [2010] EU:C:2010:622, paras. 51–52. Nevertheless, the above cited ECJ’s case law is frequently referred to when using the term controlling shareholding (‘Kontrollbeteiligung’), see Martini (2008), p. 318; Lecheler and Germelmann (2010), p. 130; Tountopoulos (2013), p. 34; Unger (2015), p. 67; Wojcik (2015a), para. 65; Ego (2017), para. 702; Hindelang and Hagemeyer (2017), p. 885. The term controlling shareholding is prone to misunderstanding control as majority control, as may be seen in Patzner and Nagler (2014), p. 732, who use this expression, cites ECJ case law, and then demands a shareholding of at least 50% in a company for an establishment within the meaning of Art 49 TFEU. Also unclear in Martini (2008), p. 318. In fact, the German version of definite influence in case law is generally misleading. Mostly, definite influence is translated as ‘sicherer Einfluss’. Sometimes, however, the same English and French term (‘influence certaine’) is translated as ‘bestimmender’ (e.g. Case C-524/04 Test Claimants in the Thin Cap Group Litigation [2007] EU:C:2007:161, para. 27), ‘bestimmter’ (e.g. Case C-244/11 Commission v Greece EU:C:2012:694, paras. 21, 23), or even ‘gewisser Einfluss’ (Überseering (n. 58), para. 77). ‘Bestimmender’ seems to require a higher level of influence than ‘gewisser’.
130.
See Case C-251/98 Baars [2000] EU:C:2000:205, para. 22: ‘So, a national of a Member State who has a holding in the capital of a company established in another Member State which gives him definite influence on the company’s decisions and allows him to determine its activities is exercising his right of establishment.’ Similarly, Überseering (n. 58), para. 77; Case C-81/09 Idryma Typou [2010] EU:C:2010:622, para. 47; Case C-244/11 Commission v Greece [2012] EU:C:2012:694, para. 21. This also is the widely prevailing opinion in literature, see e.g. Geiger (2013), pp. 135–136; Ress and Ukrow (2020a), para. 315. Apparently contra Case C-35/11 Test Claimants in the FII Group Litigation [2012] Opinion of AG Jääskinen, EU:C:2012:483, para. 114, who argues that the centre of gravity shifts to the freedom of establishment when voting rights go beyond the threshold of 10%. As voting rights of 10% do not constitute a definite influence (see cited ECJ judgments in n. 139), AG Jääskinen thus seems to argue that the investor’s definite influence on the target company is no necessary condition for an establishment within the meaning of Art 49 TFEU.
131.
Case C-298/05 Columbus Container Services [2007] EU:C:2007:745, para. 31.
132.
Case C-326/07 Commission v Italy [2009] EU:C:2009:193, para. 38; Case C-81/09 Idryma Typou [2010] EU:C:2010:622, para. 51. Generally, there are different notions of ‘shares’ in corporations: shares of nominal or currently valued capital as well as shares in voting rights. Judgments and scholar contributions usually seem to refer to shares of nominal capital. These capital shares are typically corresponding with the capital holder’s shares of voting rights. Therefore, the following also refers to shares in nominal capital. When it comes to determining the investor’s influence, not only voting rights among shareholders, but also voting rights in other contexts such as in the supervisory board become relevant.
133.
Case C-207/07 Commission v Spain [2008] EU:C:2008:428, para. 33; Roth (2009), pp. 268–269; Smit (2012), pp. 52–54. See also Krolop (2008), p. 16, who suggests a threshold of 30% of the voting rights for a definite influence citing the notion of control pursuant to German Securities Transaction Act (Wertpapierübertragungsgesetz) s 29; Herz (2014), p. 247, who stresses the possibilities of contractual arrangements.
134.
Moreover, the ECJ has no competence to interpret Member State law and therefrom derive a concrete threshold. This is stressed by Associação Peço a Palavra and Others (n. 36), para. 36. Tountopoulos (2013), p. 34, states in his note on Case C-244/11 Commission v Greece [2012] EU:C:2012:694, that Greek law requires additional factors in order for a 20% capital shares to give the investor definite influence on the target company. He adds that the parties obviously implied a sufficient degree of influence, and therefore did not submit this aspect to the ECJ for decision. Spies (2015), pp. 444–445, highlights that this approach based on national law means in third-country cases to interpret third-country corporate law. In cases of International private law, this, however, is a typical scenario. The court then seeks an expert opinion on the relevant foreign law question.
135.
Case C-244/11 Commission v Greece [2012] EU:C:2012:694, paras. 23–24.
136.
Case C-492/04 Lasertec [2007] EU:C:2007:273, paras. 21–22; Case C-382/16 Hornbach-Baumarkt [2018] EU:C:2018:366, para. 29.
137.
Joined Cases C-504 and 613/16 Deister Holding [2017] EU:C:2017:1009, para. 82.
138.
Case C-311/08 SGI [2010] EU:C:2010:26, paras. 34–35 (34 and 65% of capital); Case C-686/13 X v Skatteverket [2015] EU:C:2015:375, para. 24 (45% of capital and voting rights); Associação Peço a Palavra and Others (n. 36), para. 44 (45 and 61% of capital).
139.
Commission v Italy [March 2009] (n. 132), para. 48; Case C-282/12 Itelcar [2013] EU:C:2013:629, para. 22; Case C-47/12 Kronos International [2014] EU:C:2014:2200, para. 35.
140.
Tiedje (2015a), para. 25, nevertheless declares it settled case law that an investor holding 20% of a company’s capital may exert definite influence within the meaning of Art 49 TFEU.
141.
Nevertheless choosing this approach Schön (2015), p. 566 (for the later English version see Schön (2016), p. 229), who adopts the lawmaker’s perspective, and thus bases his assessment on the intention behind the Member State’s measure. He argues that, insofar, the delimitation of the freedoms of capital movement and establishment requires looking back and forth between the purpose of Art 49 TFEU, on the one hand, and the intention behind the Member State measure, on the other hand.
142.
Case C-251/98 Baars [2000] EU:C:2000:205, para. 22. With a detailed analysis whether the investor’s influence must be objectively possible or subjectively intended, see Lübke (2006), pp. 208–210. Lübke argues against a subjective approach due to a lack of legal certainty. It would be impossible to find an establishment in the moment of the M&A for a legal observer.
143.
Ohler (2002), Art 56 EGV, para. 113; Schön (2015), p. 566.
144.
Schön (2000), p. 11, therefore names a shareholder with definite influence an ‘entrepreneur-shareholder’ and contrasts this category to an ‘investment-shareholder’.
145.
Clostermeyer (2011), pp. 181–182.
146.
Case C-563/17 Associação Peço a Palavra and Others [2018] Opinion of AG Sánchez-Bordona, EU:C:2018:937, para. 50. For ECJ judgments and scholar contributions that reject an interpretation in the sense of control, see n. 129.
147.
Lübke (2006), p. 213; Nettesheim (2008), p. 754; Hindelang (2009), p. 85; Clostermeyer (2011), p. 187; Spies (2015), pp. 429–430. For a non-legal perspective, see UNCTAD, ‘World Investment Report 2016: Investor Nationality: Policy Challenges’ (New York, 2016), p. 129. Demanding more than a veto right Martini (2008), p. 318; Voland (2009), p. 523; Geiger (2013), p. 139.
148.
Herz (2014), p. 248, with some reservations, proposes to interpret definite influence in accordance with the notion ‘decisive influence’ in Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (Merger Regulation) [2004] OJ L 24/1, art 3(2) (on the prior version Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings [1989] OJ L 395/1, art 3(3). However, as analyzed above, decisive and definite influence have different meanings. Moreover, the object and purpose of the Merger Regulation also weigh in favour of a higher level of influence required by decisive as compared to definite influence. The Regulation seeks to identify a level of influence that enables the merged companies to coordinate market behaviour to the detriment of competition. This requires a controlling influence. Some aspects of Merger Regulation, art 3(2) are nevertheless useful to interpret definite influence, see n. 154.
149.
This is also implied by those scholars who directly define definite influence by blocking minority pursuant to German Stock Corporation Act (Aktiengesetz) s 179(1) and (2), see e.g. Case C-31/11 Scheunemann [2012] EU:C:2012:481, 26, 29; Roth (2009), p. 269. For appointing members of executive and supervisory board, Hindelang (2009), p. 85, quoting Tiedje and Troberg (2003), para. 29. The latter contribution refers to the definition of FDI within the meaning of the Capital Movement Directive (n. 112). From the perspective of Hindelang, this quote is correct, since he argues that the notion of establishment and FDI are congruent, Hindelang (2009), p. 86.
150.
Case C-326/07 Commission v Italy [2009] EU:C:2009:193, paras. 39, 4.
151.
Rightly emphasized by Krolop (2008), p. 8.
152.
Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (Market Abuse Regulation) [2014] OJ L 173/1.
153.
Market Abuse Regulation (n. 152), art 7(1)(a), (4).
154.
Kumpan (2018), Art 7, para. 14. These are mainly the same decisions that are considered to be relevant to the notion ‘decisive influence’ within the meaning of Merger Regulation (n. 148), art 3(2). See on the Merger Regulation, e.g. Körber (2012), paras. 34–35. Insofar, Herz is right in proposing to interpret definite influence in accordance with Merger Regulation, art 3(2), see n. 148.
155.
In German Stock Corporation Act (n. 149) several sections offer flexibility for amending statutory majority rules: e.g. ss 77(1) (executive board appointment), 101(2) (power to appoint supervisory board members), 122(1) and (2) (resolutions by shareholder meetings).
156.
The rights of worker co-determination are limited to corporations and cooperatives with more than 2000 employees. They affect the supervisory board’s composition as well as its majority requirements, see Habersack (2019), § 108, paras. 21–22.
157.
German Stock Corporation Act (n. 149), s 179(1), sentence 1; (2), sentence 1.
158.
Pursuant to German Stock Corporation Act (n. 149), ss 84, 108, appointing an executive board member requires a decision of the supervisory board with a simple majority, see Spindler (2019), § 84, paras. 21–22.
159.
In German law these rights require 20% of company shares, for modifying the shareholder meeting agenda shares worth €500,000, see German Stock Corporation Act (n. 149), s 122(1) and (2).
160.
Clostermeyer (2011), p. 187.
161.
Dimopoulos (2011), p. 82, mixes both notions by formulating ‘establishment of FDI’.
162.
For the FDI definition see Sect. 2.4.1. It is congruent with the Capital Movement Directive (n. 112).
163.
The ECJ favours a stricter notion of influence for establishment than for FDI, implied by contrasting the definitions of establishment and FDI, see e.g. Commission v Italy [March 2009] (n. 132), paras. 34–35; Idryma Typou (n. 129), paras. 47–49. Spies (2015), p. 438, n. 2329, argues that Case C-35/11 Test Claimants in the FII Group Litigation [2012] EU:C:2012:707, para. 102, explicitly equated both notions. However, given the other above-cited judgments, this may not be concluded from the phrase ‘It is apparent from that provision [Art 64(1) TFEU] that Article 63 TFEU on the free movement of capital covers, in principle, capital movements involving establishment or direct investment. The latter terms relate to a form of participation in an undertaking through the holding of shares which confers the possibility of effectively participating in its management and control’. The prevailing opinion in literature also is in favour of definite influence being more narrow than the FDI notion, see Case C-446/04 Test Claimants in the FII Group Litigation [2006] Opinion of AG Geelhoed, EU:C:2006:240, para. 119; Clostermeyer (2011), p. 185; Kotthaus (2012), p. 62; Puig (2013), p. 140; Herz (2014), p. 291; Wojcik (2015a), para. 64; de Kok (2019), p. 29. Also Lübke (2015), para. 43, formerly with the opposite opinion in Lübke (2006), p. 214. Apparently also Smit (2012), p. 65; Tiedje (2015a), para. 31; Korte (2016a), para. 39, who all stress that they refer to FDI that gives a definite influence, and thus imply FDI that does not give such level of influence. For the same level of influence Hindelang (2009), p. 85 (‘essentially’ the same level). Also implied by Roth (2009), pp. 267–268; and apparently Nettesheim (2008), p. 754, who lists both definite influence and effective participation as alternative definitions. Test Claimants in the FII Group Litigation [2012] Opinion of AG Jääskinen (n. 130), paras. 114–115, also seems to imply the same level of influence for both notions when arguing that the centre of gravity shifts to the freedom of establishment when voting rights go beyond the threshold of 10%. The question of overlapping definitions of FDI and establishment are closely linked with the delimitation of the freedoms of capital movement and establishment. Regarding this question, some argue that only the freedom of establishment applies for FDI, thereby implying that an FDI fulfils the conditions of an establishment pursuant to Art 49 TFEU.
164.
See also Associação Peço a Palavra and Others, Opinion of AG Sánchez-Bordona (n. 146), para. 50. Contra Hindelang (2009), p. 87, who rightly differentiates between decisive or definitive and definite influence, but does not see the difference between effective and definite influence.
165.
For the distinction between effective participation and the power to influence decisions in a certain manner, see also Commission v Italy [March 2009] (n. 132), paras. 38–39.
166.
With this example Ohler (2002), Art 57 EGV, para. 11; Hindelang (2009), p. 86.
167.
See Sect. 4.2.3.1 and n. 112.
168.
Hindelang (2009), p. 111; Kotthaus (2012), p. 63; Geiger (2013), p. 150; Lübke (2015), para. 47; Schön (2015), p. 560; Tiedje (2015a), para. 23; Ress and Ukrow (2020a), para. 318. It is sometimes unclear whether these authors argue on the definitory or applicatory level. Contra Herz (2014), pp. 320–321, who argues that the term ‘establishment’ in Art 64(1) and (2) TFEU does not refer to the notion of establishment within the meaning of Art 49 TFEU. However, the TFEU will not define the term establishment differently in so similar contexts.
169.
Lübke (2006), pp. 232–233; Lübke (2015), para. 47.
170.
With a detailed analysis of all delimitation criteria that are being discussed in case law and literature, see Herz (2014), pp. 238–257.
171.
Presenting this as the delimitation criterion Müller-Graff (2003), p. 936; Nettesheim (2008), pp. 753–754; Kotthaus (2012), p. 58; Geiger (2013), p. 147; Gosch and Schönfeld (2015), p. 760; Ego (2017), paras. 701–705. Spies (2015), p. 467, makes this delimitation criterion one part of her proposed delimitation test.
172.
This catch-all function will only fail in the improbable case in which the FDI is solely set up with capital from the host state; Tiedje (2015a), para. 31, n. 47. Another example of establishment in which cross-border capital movement is missing is an establishment without any starting capital, e.g. an artist without assets, see Schön (2015), p. 562. More generally, one can thus state that nearly all establishments rely on capital movement, Forsthoff (2020b), para. 128.
173.
Case C-251/98 Baars [2000] EU:C:2000:205. For a summary of case law that demonstrates the earlier lack of clarity, see Nettesheim (2008), pp. 742–747.
174.
For the ECJ’s case law on interpreting the grounds of exception in third-country contexts, see Sect. 3.2.4. The ECJ does not generally interpret these grounds more broadly, but admits that there might be cases in which a measure could fail the proportionality test in intra-EU, but pass it in third-country cases.
175.
Commission v Italy [March 2009] (n. 132), para. 33;Test Claimants in the FII Group Litigation [2012] (n. 163), para. 90; Associação Peço a Palavra and Others (n. 36), para. 43. The ECJ uses the term ‘national legislation’. However, there is no reason why the same approach should not be applied to EU legislation. Therefore, the following uses the general term ‘legislation’.
176.
The ECJ itself describes this as settled case law, see e.g. Associação Peço a Palavra and Others (n. 36), para. 43. Applying this test, the ECJ concludes the exclusive applicability of Art 49 TFEU e.g. in Cadbury Schweppes und Cadbury Schweppes Overseas (n. 58), paras. 32–33; Commission v Italy [March 2009] (n. 132), para. 39; Commission v Greece (n. 129), paras. 23–25. In the past, some scholars assumed that this case law were specific to tax law cases, see Krolop (2008), p. 16; Scharf (2008), p. 22. Case C-112/05 Commission v Germany [2007] EU:C:2007:623, para. 13; Commission v Greece (n. 129), paras. 21–25, both on Golden shares regulation, rebutted this assumption. Nevertheless, Hindelang and Hagemeyer (2017), p. 886, still doubt that this case law may be transposed to other than tax law cases, since it is exclusive Member State competence and crucial for Member States to secure tax revenue. According to Hindelang and Hagemeyer, the ECJ therefore wanted to avoid a unilateral liberalization of capital movement vis-à-vis third-countries that affects Member States’ tax revenues. For the definition of definite influence as the definitory criterion of an establishment through M&A within the meaning of Art 49 TFEU, see Sect. 4.2.3.2.2.
177.
Commission v Italy [March 2009] (n. 132), para. 39. Similarly, Lasertec (n. 136), paras. 25, 28 (also ‘primarily affects’); Cadbury Schweppes und Cadbury Schweppes Overseas (n. 58), para. 33. In Lasertec the ECJ adds that Art 49 TFEU were ‘primarily affected’, and the restriction of Art 63(1) TFEU an ‘unavoidable consequence’.
178.
Test Claimants in the Thin Cap Group Litigation (n. 129), paras. 101–104; Lasertec (n. 136), para. 27; Scheunemann (n. 149), paras. 34–35. On the delimitation of the freedom of services from Art 63(1) TFEU, Fidium Finanz (n. 112), para. 50.
179.
Following this rationale, in Joined Cases C-436 and 437/08 Haribo Lakritzen Hans Riegel [2011] EU:C:2011:61, paras. 36–38, the ECJ only assesses and applies Art 63(1) TFEU. The ECJ applies the same rationale in many judgments, see e.g. X v Skatteverket (n. 138), para. 19.
180.
Idryma Typou (n. 129), para. 49; Test Claimants in the FII Group Litigation [2012] (n. 163), para. 93; X v Skatteverket (n. 138), para. 19. Korte (2016a), para. 35, interprets this case law as focusing on the legislative intent only for third category legislation, but for the other categories on the shareholdings at issue. However, Korte’s references to Bünning (2014), p. 1778; Forsthoff (2020b), para. 129, do not support this thesis.
181.
Pointing out these possible sets of facts Schön (2015), pp. 558–559. Spies (2015), p. 254, argues that in the first and second legislation category the legislative intent and the affected sets of facts are usually the same. Accordingly, the ECJ’s subjective approach came to the same conclusion.
182.
Columbus Container Services (n. 131), paras. 29–33, 55–57; Commission v Spain [July 2008] (n. 133), paras. 36–39, 61–62; Commission v Italy [March 2009] (n. 132), para. 38.
183.
Commission v Germany [2007] (n. 176), paras. 15–16 (the Commission could not establish a definite influence for the case at issue). With the same interpretation Hindelang (2009), pp. 90–95; Kemmerer (2010), p. 169; Geiger (2013), pp. 144–145; Schön (2015), pp. 572–573.
184.
Earlier ECJ judgments on Golden shares and similar regulations also belong in the category of judgments that only apply Art 63(1) TFEU, e.g. Case C-503/99 Commission v Belgium [2002] EU:C:2002:328, paras. 58–59 (the ECJ examines Art 49 TFEU apparently only because it was invoked by the Commission, and for its conclusion refers to its conclusions on Art 63(1) TFEU); Case C-367/98 Commission v Portugal [2002] EU:C:2002:326, paras. 21–26, 36, 56 (the Commission claimed a violation of both Arts 49 and 63(1) TFEU, but the ECJ only examined Art 63(1) TFEU, and held that ‘there is no need for a separate examination’ in light of Art 49 TFEU); Commission v Italy [2005] (n. 75), paras. 26–29 (in both cases the Commission only claimed a violation of Art 63(1) TFEU); Case C-274/06 Commission v Spain [2008] EU:C:2008:86, paras. 1, 7, 16. Herz (2014), pp. 231–232, also sees these judgments as indifferent to the issue of delimitation of Arts 49 and 63(1) TFEU.
185.
Test Claimants in the FII Group Litigation [2012] (n. 163), para. 94; Kronos International (n. 139), para. 37, with further references. Its judgments on investment screening, Golden shares, and similar legislation arouse in abstract preliminary ruling procedures pursuant to Art 267 TFEU. There was thus no case at issue to assess. There are only two exceptions. In Idryma Typou (n. 129), paras. 47–52, 60, the ECJ could have, but omitted to assess the case at issue. However, as the submitted questions were limited to abstract issues. One may thus not conclude that the ECJ rejected transposing the tax case law to other contexts such as FDI screening. In Associação Peço a Palavra and Others (n. 36), paras. 43–44, the ECJ did assess the individual case only by basing its interpretation of an abstract law on the more specific tender specifications that were applied in the case at issue.
186.
Kemmerer (2010), pp. 166–168; Geiger (2013), p. 146; Lübke (2015), para. 46; Schön (2015), pp. 576–577; Bröhmer (2016a), Art 63 AEUV, paras. 28, 35; Herz (2014), p. 252, even argues that the ECJ in fact undertakes an assessment of the individual case only, without intending to develop a general delimitation test.
187.
Explicitly in Test Claimants in the FII Group Litigation [2012] (n. 163), para. 99: ‘A company resident in a Member State may therefore rely on that provision [Art 63(1) TFEU] in order to call into question the legality of such rules, irrespective of the size of its shareholding in the company paying dividends established in a third country’ (emphasis added). Replicated by Kronos International (n. 139), para. 52. Ohler (2002), Art 56 EGV, para. 64, also seems to support this understanding.
188.
Gosch and Schönfeld (2015), p. 757, and arguably Ress and Ukrow (2020a), para. 318, also understand the legislative intent as the single delimitation method.
189.
Müller-Graff (2003), p. 935; Hindelang (2009), pp. 99–100; Herz (2014), pp. 251–252. Explicitly in favour Schön (2015), pp. 577–578.
190.
Contra Schön (2015), pp. 566–567.
191.
Müller-Graff (2003), p. 935; Clostermeyer (2011), p. 184.
192.
This was already indicated by the second clarification in the introduction to this section. Similarly without much argumentative effort, de Kok (2019), p. 29; Zwartkruis and de Jong (2020), p. 456. Lübke (2015), para. 38, applies a similar test. Also Spies (2015), pp. 142, 154–157, but as part of a two-tier test. According to her test, both the case at issue and the legislative intent should fall under the Fundamental freedom’s scope. For abstractly assessing legislation without a case at issue, Spies takes into account whether the legislation restricts one or both freedoms. This, however, confuses the applicability of a Fundamental freedom and, as a second step, its restriction by a concrete measure.
193.
Hindelang (2009), p. 100; Herz (2014), pp. 250–251.
194.
Schön (2015), p. 578. See also Spies (2015), pp. 251, 270–272, who seeks to meet the concern by demanding an overall assessment of the legislation’s content and its design in Member State law. According to Spies, the legislative intent should not be the basis for delimiting Arts 49 and 63(1) TFEU, at least in cases on taxation, since taxation remains exclusive Member State competence. However, the particularities of taxation for Member States may be taken into account when applying the test.
195.
Case C-164/12 DMC [2014] EU:C:2014:20, paras. 32–34. Gosch and Schönfeld (2015), p. 757, argue that the ECJ adds considerations of the legislation’s impact to its purpose method to avoid that policy makers disguise their purpose. Herz (2014), p. 250, also sees the risks of a formal purpose-based approach and therefore criticizes the ECJ’s case law.
196.
One may even assume that the ECJ bases its case law on such an understanding without making the theoretical background transparent, arguably with similar understandings Lübke (2015), para. 38; Forsthoff (2020b), para. 129. Therefore, it would be misleading to present the legislative intent as the only delimitation criterion, and on this basis dismissing the ECJ’s case law, see Müller-Graff (2003), p. 935.
197.
Other judgments seem to be indifferent to the issue of delimitation of Arts 49 and 63(1) TFEU. Often, the ECJ assesses Art 63(1) TFEU, and either omits any reference to Art 49 TFEU, or holds that an examination of Art 49 TFEU was not necessary, Case C-302/97 Konle [1999] EU:C:1999:271, para. 22; Case C-423/98 Albore [2000] EU:C:2000:401, para. 22; Case C-452/01 Ospelt und Schlössle Weinberg [2003] EU:C:2003:493, para. 24; Case C-364/01 Barbier [2003] EU:C:2003:665, paras. 58, 75; Case C-235/17 Commission v Hungary [2019] EU:C:2019:432, para. 53. In another case the ECJ primarily examined Art 49 TFEU and only briefly addressed Art 63(1) TFEU, Case C-345/05 Commission v Portugal [2006] EU:C:2006:685, paras. 13–18, 44–45. With a more detailed analysis of some of these cases, all regarding real estate transactions, see Herz (2014), pp. 213–230, who interprets these judgments as mostly indifferent on how to delimit Arts 49 and 63(1) TFEU.
198.
For ECJ judgments see n. 198. Regarding real estate investment for establishment purposes, the ECJ tends to a parallel applicability of Arts 49 and 63(1) TFEU. Insofar, Art 63(1) TFEU is a ‘corollary’ to Art 49 TFEU, see Konle (n. 197), para. 22; Joined Cases C-515, 519 to 524, and 526 to 540/99 Reisch and Others [2002] EU:C:2002:135, paras. 28–29.
199.
With this interpretation all scholars who understand the ECJ as applying Art 49 TFEU exclusively in case of a definite influence, see n. 171. Also Hindelang (2009), p. 108; Smit (2012), pp. 461–464; Tietje (2014), para. 33; Lübke (2015), para. 44; Ress and Ukrow (2020a), para. 318. As this results in an exclusive application of Art 49 TFEU, the label ‘gravity approach’ would be misleading; with the same conclusion Geiger (2013), p. 147. Clostermeyer (2011), p. 208, nevertheless uses the label ‘gravity approach’.
200.
Lübke (2015), para. 45.
201.
Test Claimants in the FII Group Litigation [2012] (n. 163), paras. 96–103; Kronos International (n. 139), paras. 39–52, both on taxing dividends. In Itelcar (n. 139), paras. 16–24, the ECJ extends this strand of case law to taxation of interests received from shareholder loans.
202.
Test Claimants in the FII Group Litigation [2012] (n. 163), para. 97. If dividends and loan interests are taxed, the company on which the taxes are imposed must already have been granted market access, Test Claimants in the FII Group Litigation [2012] (n. 163), para. 100; Kronos International (n. 139), para. 54. In tax law cases outside third-country context, the ECJ omits to refer to the exception for legislation that intends to regulate market access, see e.g. X v Skatteverket (n. 138), paras. 23–24; Deister Holding (n. 51), paras. 81–84. Market access as delimitation criterion also emerges when delimiting Art 63(1) TFEU from the freedom of services, see Case C-580/15 Van der Weegen and Others [2017] EU:C:2017:429, para. 29; and ii) ‘Delimitation Criterion’.
203.
Kronos International (n. 139), para. 53. Test Claimants in the FII Group Litigation [2012] Opinion of AG Jääskinen (n. 130), para. 122; paraphrases this consideration by opining that the personally limited scope of Art 49 TFEU may not be extended to third-countries ‘through the backdoor’.
204.
Test Claimants in the FII Group Litigation [2012] (n. 163), paras. 96–103. For the subsequent judgments see n. 201. The term Non-EU Company was defined as a company that does not meet the requirements of Art 54(1) TFEU, see Sect. 4.2.2.1.2.
205.
See introduction to this Sect. 4.2.3.3.
206.
See also Spies (2015), pp. 241–242. Hindelang and Hagemeyer (2017), p. 885, still understand ECJ case law as applying Art 49 TFEU exclusively.
207.
Scharf (2008), p. 22. Contra Hindelang and Hagemeyer (2017), p. 886, since the policy area of direct taxation is particularly sensitive for Member States, see n. 176.
208.
Nevertheless, in Test Claimants in the FII Group Litigation [2012] (n. 163), paras. 98–99, the ECJ explicitly stated that Art 49 TFEU remains exclusively applicable in case of first type legislation (legislation that only addresses shareholdings giving the investor a definite influence on the target company).
209.
For these considerations see ibid., paras. 97–100.
210.
With the same understanding of ECJ case law Spies (2015), pp. 243–244, who finds corporate, business, and commercial law to often provide market access rules.
211.
With a similar conclusion Spies (2015), pp. 242–243, who expects that the ECJ will increasingly consider the legislative intent, not the individual case. Spies rightly infers that this would lead to more parallel applicability of Arts 49 and 63(1) TFEU, since the ECJ consulted the individual case to avoid parallel application.
212.
See Sect. 4.2.2.4. With a similar application of the ECJ case law to FDI Screening mechanisms, de Kok (2019), p. 29.
213.
See second clarification in introduction to this Sect. 4.2.3.3.
214.
The arguably predominant opinion in literature is in favour of an entirely parallel relation of Arts 49 and 63(1) TFEU, Hindelang (2009), p. 114; Wolff (2009), pp. 168–170; Kemmerer (2010), pp. 170–171; Clostermeyer (2011), p. 219; von Wilmowsky (2014), para. 55; Lübke (2015), para. 149; Wojcik (2015a), para. 66. As will be shown below, other scholars argue for an, in principle, parallel applicability that exceptionally gives way to the exclusive applicability of the Art 49 TFEU.
In favour of the exclusive applicability of Art 49 TFEU Bröhmer (2016a), para. 35, as well as originally Ohler (1997), p. 1801, who now is in favour of a parallel applicability of both freedoms, except in third-country cases, Ohler (2002), Art 56 EGV, paras. 118–119. In addition, all those who see definite influence as a delimitation criterion between both freedoms are in fact in favour of the exclusive applicability of Art 49 TFEU, Tiedje (2015a), para. 25.
215.
See Sect. 4.2.3.2.4.
216.
Lübke (2006), p. 230; Herz (2014), p. 309. See also Herz (2014), pp. 275–276, on the historical arguments weighing against an exclusive applicability of the freedom of establishment.
217.
Geiger (2013), pp. 151–152. On the other hand, Bachlechner (1998), p. 531; Mülbert (2001), p. 2089, argue that Arts 49(2) and 65(2) TFEU result in an infinite chain of references that cannot provide any argument to the relation between Arts 49 and 63(1) TFEU. This argumentation, however, ignores that the provisions address different levels of assessment, scope of application (Art 49 TFEU) on the one and ground of exception on the other hand (Art 65(2) TFEU), Herz (2014), pp. 323–324.
218.
The relevant part of Art 49(2) TFEU reads: ‘subject to the provisions of the Chapter relating to capital’. The alternative reading, applying the freedom of capital movement exclusively, would deprive the freedom of establishment of its meaning.
219.
Müller-Graff (2003), p. 934; Geiger (2013), pp. 142–143; Hindelang (2009), p. 89. Contra Herz (2014), pp. 322–323, who develops an argumentum e contrario arguing that Art 49(2) TFEU, in contrast to Art 65(2) TFEU, does precisely not reference the grounds of exception. While this may be concluded from the provisions’ explicit wording, the literal meaning and context of Art 49(2) TFEU make clear that the reference is indeed of an even wider scope. It includes the grounds of exception as well as the scope of application of the freedom of capital movement.
220.
Herz (2014), pp. 324–325; Schön (2015), p. 560; Ego (2017), para. 697. Smit (2012), p. 452, however, turns this argument around. He reads Art 65(2) TFEU primarily in light of Third-country cases. In these cases, he argues, Art 65(2) TFEU should ensure that the restrictions to the freedom of establishment apply even though the freedom of establishment is not applicable.
221.
See for scholars with the same line of argument n. 168.
222.
Lübke (2015), paras. 48, 78. In particular, Art 65(2) TFEU demonstrates that the freedom of capital movement recognizes the grounds of exception of Arts 50–53 TFEU as tailored to establishment situations. On this basis, Müller-Graff (2003), p. 933, even argues that Art 63(1) TFEU vis-à-vis Art 49 TFEU only had collateral significance. This understanding, however, neglects Art 49(2) TFEU and the fact that all Fundamental freedom purposes are in principle equally ranked.
223.
Hindelang (2009), pp. 110–111; Clostermeyer (2011), p. 215; Lübke (2015), para. 47; Schön (2015), p. 560.
224.
In favour of also taking this element into account when delimiting Arts 49 and 63(1) TFEU; Schön (2015), p. 561. Criticizing this approach Herz (2014), p. 265.
225.
Müller-Graff (2003), p. 934. On applying the grounds of exception of one freedom in the ambit of the other freedom Dimopoulos (2011), pp. 82–83.
226.
Unger (2015), p. 68, concludes that this would make the freedom of capital movement a ‘pseudo freedom of establishment’ (‘unechte Niederlassungsfreiheit’). Spies (2015), pp. 199–200, cites Opinion 1/94 Accords annexés à l’accord OMC [1994] EU:C:1994:384, para. 81, to stress that it was a deliberate decision to limit the personal scope of Art 49 TFEU. She rightly concludes that this understanding collides with the erga omnes effect of Art 49 TFEU. This is why she argues that Art 49 TFEU should override Art 63(1) TFEU if the legislation at issue at least almost exclusively applies to entrepreneurial shareholding within the meaning of Art 49 TFEU, Spies (2015), p. 467. Herz (2014), pp. 414–415, is also in favour of an exclusive applicability of Art 49 TFEU in third-country cases due to the conflicting interests.
227.
Geiger (2013), p. 154; Tietje (2014), para. 33. See also Hindelang (2009), p. 111, who equates FDI and establishment and therefore bases his argument here on the assumption that Art 49 TFEU would override Art 63(1) TFEU in each case of FDI (see Sect. 4.2.3.2.4). Contra Roth (2009), p. 267, who is afraid of undermining the purpose Arts 49 and 54 TFEU if interpreting Art 63(1) TFEU too broadly.
228.
Under Art 65(2) TFEU another conflict materializes if Arts 49 and 63(1) TFEU apply parallelly in Third-country cases. The conflict may, however, be resolved by other means than applying Art 49 TFEU exclusively. Art 65(2) TFEU provides that restrictions allowed under Arts 49–55 TFEU must also be allowed under Arts 63–66 TFEU. Hence, technically, the freedom of establishment’s grounds of exception apply to restrictions of Art 63(1) TFEU, except in Third-country cases. In these cases Art 49 TFEU, and thus its grounds of exception, are not applicable. Consequently, foreign investors enjoy a higher level of Fundamental freedom protection than EU Companies generally. To resolve this conflict, one may apply the freedom of establishment’s grounds of exception analogically also in Third-country cases (see Herz (2014), p. 364; Lübke (2015), para. 149). Others read Art 65(2) TFEU as implying that Art 49 TFEU overrides Art 63(1) TFEU in Third-country cases. They argue that the limited personal scope of Arts 49 and 54 TFEU is a ‘restriction’ within the meaning of Art 65(2) TFEU. This, however, overstretches the term ‘restriction’ (cf Hindelang (2009), p. 112; Wolff (2009), pp. 166–167). If a company does not fall in the personal scope of the freedom of establishment, hindering its investment will not ‘restrict’ its freedom of establishment, since it does not even apply. Last but not least, Smit (2012), p. 453, reads Art 65(2) TFEU as a general collision rule that, negatively, ensures that foreign investments are not treated more favourable than intra-EU investments (see also in n. 220).
229.
Clostermeyer (2011), p. 218 (only referring to Art 64(1) and (2) TFEU); Lübke (2015), para. 150. Similarly, Case C-101/05 Skatteverket v A [2007] EU:C:2007:804, paras. 31–33, when arguing for an equal protection of intra- and extra-EU capital movement.
230.
See in detail Sect. 4.2.5.
231.
An additional argument against Arts 64, 65(4) and 66 TFEU as sufficient means to address third-country contexts seems to be the competence for the EU only, not the Member States. However, the EU has exclusive competence on internal measures regulation FDI anyway, see Sect. 4.1.3.
232.
On the different gateways for taking the particularities of third-country contexts into account, see Sect. 3.2.4.
233.
Contra the contextual argument of Art 64 TFEU Lecheler and Germelmann (2010), p. 132. They argue Art 64 TFEU, as Art 66 TFEU, might apply as a legal competence basis even if Art 63(1) TFEU does not apply, since it is overridden by Art 49 TFEU.
234.
Scharf (2008), p. 14; Hindelang (2009), p. 111; Kemmerer (2010), p. 170; Kotthaus (2012), p. 63; Geiger (2013), p. 154; Schuelken and Sichla (2019), p. 1408. In the same vein, Hindelang (2013), p. 81, when he is seeking to preserve a last bit of free movement right (‘einen Rest materieller Freiheitsverbürgung’). He thus wrongly insinuates that if one Fundamental freedom overrides another, this would already undermine the Fundamental rights as a whole.
235.
Herz (2014), pp. 331–332. On this issue generally Wegener (2016), para. 16; Rüthers et al. (2018), para. 820c.
236.
Similarly, Lübke (2006), p. 167.
237.
Schön (1997), pp. 745–746; Spies (2015), p. 28; Ress and Ukrow (2020a), para. 10. Also Lübke (2015), para. 9, who concludes that Art 63(1) TFEU protected the expectation of return from investing funds.
238.
Cf Herz (2014), pp. 335–338; Ress and Ukrow (2020a), Art 63 AEUV, paras. 11, 13, highlight the importance of Art 63(1) TFEU for the internal market.
239.
See Hindelang (2009), pp. 27–29. See also Lübke (2006), pp. 232–233, who, in Lübke (2015), para. 10, also emphasizes the additional purpose of Art 63(1) TFEU in third-country contexts that is, to strengthen the monetary union. Moreover, Spies (2015), pp. 37–39, who at the same time indicates her doubts. Herz (2014), p. 337, labels the opinion simplistic that the purpose of Art 63(1) TFEU is the effective capital allocation (‘unterkomplex’).
240.
See economic analysis in Sect. 2.2.
241.
Nevertheless, adopting this argument Hindelang (2009), pp. 112–113; Geiger (2013), pp. 173–176, 182. Hindelang uses this argument as the main reason to argue for a parallel applicability of Arts 49 and 63(1) TFEU.
242.
Geiger (2013), pp. 178–182; Herz (2014), pp. 342–345; Spies (2015), pp. 32–35; Ress and Ukrow (2020a), Art 63 AEUV, para. 19. In the same vein, Skatteverket v A (n. 229), para. 31; Joined Cases C-436 and 437/08 Haribo Lakritzen Hans Riegel [2010] Opinion of AG Kokott, EU:C:2010:668, para. 110. For a presentation of minority viewpoints that see the erga omnes effect as a mere political goal, without creating individual rights for foreigners, see Hindelang (2009), pp. 24–27. Also highlighting the different purposes for intra-EU and third-country capital movement, Roth (2009), p. 262.
243.
Similarly, Lecheler and Germelmann (2010), p. 132. On this basis, Herz (2014), pp. 345, 358, 414–415, even argues that the limited purpose of Art 63(1) TFEU regarding third-country capital movement weighs in favour of according less protection to third-country capital movement than to intra-EU capital movement generally. Also based on this argumentation, Hertz concludes that Art 49 TFEU may override Art 63(1) TFEU in Third-country cases. However, this conclusion would transform a limited purpose of protection into no protection at all, and therefore goes too far.
244.
Herz (2014), pp. 372–390, who also presents a detailed analysis of the rule-exception-model in legal doctrine. In particular, Herz emphasizes that this model requires to first identify all possible interpretations of an exception, and then choose the interpretation that results in the exception’s narrowest scope, Herz (2014), p. 392.
245.
Herz (2014), p. 402.
246.
Herz (2014), p. 407.
247.
For the definition of Non-EU Company, see Sect. 4.2.2.1.
248.
Smit (2012), pp. 478–482, submits a low-threshold delimitation criterion. The legislation would need to have a sufficient causality link to Arts 49 and 63(1) TFEU. If the legislation had such link to both, Arts 49 and 63(1) TFEU might apply parallelly. Smit denies this link only if it were too indirect or tenuous. However, this criterion is very imprecise, and fails to address the real conflict of parallel application: the limited personal scope of Arts 49 and 54 TFEU.
249.
See introduction to ii).
250.
The following arguments are sometimes also invoked against the above-discussed exclusive applicability of Art 49 TFEU generally or in third-country contexts. As they would not have affected the above-reached outcome, these arguments are more relevant here and are thus addressed in the following.
251.
Clostermeyer (2011), pp. 217–218.
252.
Clostermeyer (2011), pp. 218–219. For the catch-all function of Art 2(1) Grundgesetz, see e.g. Kahl (2013), paras. 35–39.
253.
See already in Sect. 4.2.2.2.
254.
Spies (2015), pp. 201–202. The ECJ reaches the same result, see n. 202.
255.
With this argument e.g. Schraufl (2007), p. 606; Geiger (2013), pp. 154–155 (both labelling this effect a paradox); Hindelang and Hagemeyer (2017), p. 885; Ress and Ukrow (2020a), para. 314. Wojcik (2015a), para. 66, also criticizes the ‘odd’ result of a decreasing Fundamental freedom protection with increasing investor influence. Herz (2014), p. 334, sees a more general paradox. He argues that Fundamental freedoms are directives for optimizing freedom. Herz concludes that it would be contrary to this nature if an allowed restriction of one Fundamental freedom also restricts another freedom. At least in the relation between Arts 49 and 63(1) TFEU, however, precisely this consequence is provided by Art 49(2) and 65(2) TFEU.
256.
See also Nettesheim (2008), p. 751; Roth (2009), p. 267.
257.
Against the delimitation criterion of definite influence—which would mean the exclusive applicability of Art 49 TFEU—Geiger (2013), p. 152; Lübke (2015), para. 47. On the difficulty to precisely identify the legislative intent in the realm of taxation, Schön (2015), pp. 579–580.
258.
Generally against this delimitation method Ohler (2002), Art 56 EGV, para. 120; Hindelang (2009), p. 111; Herz (2014), pp. 240–241. See also Lecheler and Germelmann (2010), p. 131. Clostermeyer (2011), p. 183, also dismisses this delimitation method in the realm of defining establishment.
259.
Herz (2014), pp. 240–241; Spies (2015), p. 230.
260.
Lübke (2015), para. 37; on real estate acquisitions, Bachlechner (1998), pp. 530–531.
261.
See i) ‘Point of Departure for Delimiting Arts 49 and 63(1) TFEU’.
262.
See introduction to this Sect. 4.2.3.3.
263.
In favour of a gravity test Cremer (2015), p. 46; Kingreen (2016), para. 30.
264.
Hindelang (2009), p. 112, sees both approaches as ultimately the same.
265.
Test Claimants in the FII Group Litigation [2012] (n. 163), para. 100, and subsequent judgments, see n. 202. Also Dimopoulos (2011), p. 84, who repeatedly stresses that Art 63(1) TFEU applies only to the capital movement related to the FDI, not the FDI itself. Given that the Capital Movement Directive (n. 112) explicitly defines FDI as capital movement, this statement is misleading. However, he is right in differentiating between liberalizing the capital movement and the establishment as a distinct business activity.
266.
Test Claimants in the FII Group Litigation [2012] (n. 163), para. 100.
267.
See also Spies (2015), pp. 222–223, who argues that sector-specific prudential regulation, business and corporate laws contain such market access rules.
268.
Gebhard (n. 120), para. 37.
269.
This is also demonstrated by the attempt of Spies (2015), pp. 246–247, to interpret the ECJ’s case law. At last, she defines the criterion market access as the requirement of a significantly negative impact on market access (‘wesentliche negative Auswirkungen auf den Marktzugang’)—a very broad criterion.
270.
This consequence causes criticism in literature of market access as delimitation criterion, see Kingreen (2016), paras. 65, 68, with further references.
271.
Spies (2015), p. 463, proposes to assess the notion ‘long-term’ in accordance with Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States [2011] OJ L 345/8, art 3(2)(b), and on this basis sets a threshold of two years.
272.
Capital Movement Directive (n. 112), Annex I.
273.
Ohler (2002), Art 56 EGV, para. 113; Schön (2015), p. 566.
274.
Similarly, Ohler (2002), Art 56 EGV, para. 119.
275.
Ohler (2002), Art 56 EGV, para. 109. Similarly, Lecheler and Germelmann (2010), p. 131, who then identify the stable integration in the host state’s internal market as delimitation criterion without providing further substantiation.
276.
Nevertheless, adopting this argument Ohler (2002), Art 56 EGV, para. 119.
277.
See e.g. German Securities Transaction Act (n. 133), ss 10–11.
278.
See e.g. German Trade, Commerce and Industry Regulation Act (Gewerbeordnung), s 35.
279.
It remains relevant when applying the legislation, cf n. 105.
280.
For their definition see Sect. 4.2.2.4.
281.
The sellers’ disinvestment is also protected by the freedom of capital movement Sect. 4.2.2.3. This even applies if the investor is a foreign State or foreign public undertaking, and as such excluded from the personal scope of Art 63(1) TFEU.
282.
For this argument see in particular Sect. 4.2.2.3.
283.
Lübke (2015), para. 45.
284.
With the rare exception of cases in which the establishment requires no cross-border capital movement.
285.
See Sect. 4.2.3.3.2 ‘The principle’.
286.
On the congruency between the term establishment in Art 64(2) TFEU and Art 49 TFEU see n. 168.
287.
The nearly identical, predecessor provision Art 57(2) EC served e.g. as a legal basis for Council Decision 2008/801/EC of 25 September 2008 on the conclusion, on behalf of the European Community, of the United Nations Convention against Corruption [2008] OJ L 287/1, as well as several conclusions on the EU’s Neighbourhood policy, see with further examples Bröhmer (2011), Art 64 AEUV, fn. 23.
288.
The other grounds of exception for third-country capital movement are Arts 65(4) and 66 TFEU.
289.
See also OECD, ‘Benchmark Definition of Foreign Direct Investment’ (Paris, 2008), para. 117. See also Lübke (2006), p. 277.
290.
For definition of EU Company within the meaning of Art 54(1) TFEU, see Sect. 4.2.2.1.2.
291.
The OECD defines SPVs as residents, but also includes the controlling entities in the FDI relationship, see OECD, ‘Benchmark Definition of Foreign Direct Investment’ (n. 289), para. 315.
292.
For the following three aspects see Bakker (1996), pp. 233–234, 246–247; Smit (2012), pp. 645–648.
293.
See summary in Commission (2003), pp. 325–326.
294.
Contra Hindelang (2009), p. 78. He argues that the definition of third-country capital movement based on foreign control would introduce ‘the theory of seeking to determine the nationality of a company by the nationality of its shareholders’ ‘by the backdoor’ (Hindelang (2009), p. 77, n. 188). This argument is flawed. It is derived from Art 54(1) TFEU, which rejects such control theory to define EU Companies. Art 64 TFEU, however, applies the control theory to identify capital from third countries. The rationales behind both definitions are thus different.
295.
See Sect. 2.4.2.
296.
Puig (2013), p. 152; Herrmann (2019), pp. 462–463. In both cases, however, the scholars discuss Art 64(2) and (3) TFEU in their capacity as possible competence basis in contrast to Art 207(1) and (2) TFEU. Herrmann and Puig might come to different conclusions for the substantial scope of Art 64(2) and (3) TFEU as grounds of exception to the erga omnes effect of Art 63(1) TFEU.
297.
Skatteverket v A (n. 229), para. 34.
298.
This becomes much clearer when reading the French and German version of ibid. The French version reads: ‘En effet, le paragraphe 2 de l’article 57 CE doit être lu en combinaison avec le paragraphe 1 du même article et se limite à permettre au Conseil d’adopter des mesures relatives auxdites catégories de mouvements de capitaux, sans que les restrictions nationales ou communautaires dont le maintien est explicitement prévu par ce paragraphe 1 puissent lui être opposées.’ The judgment’s German version provides: ‘Art 57 Abs. 2 EG ist nämlich in Verbindung mit Abs. 1 dieses Artikels zu lesen und beschränkt sich darauf, dem Rat zu erlauben, Maßnahmen für diese Kategorien von Kapitalbewegungen zu beschließen, ohne dass ihm die einzelstaatlichen oder gemeinschaftlichen Beschränkungen, deren Beibehaltung in diesem Abs. 1 ausdrücklich vorgesehen ist, entgegengehalten werden könnten.’
299.
Similarly, Korte (2019), p. 126. See also Wojcik (2015b), para. 15; Bröhmer (2016b), para. 9; Ress and Ukrow (2020b), paras. 4, 22. Arguably also Hindelang (2009), p. 300.
300.
This is the predominant opinion in literature, see Smit (2012), pp. 787–788; Wojcik (2015b), para. 1; Schön (2016), p. 233; Bröhmer (2016b), para. 3; Sedlaczek and Züger (2018), para. 7; Korte (2019), p. 126; Cremona (2020), pp. 37–38; Ress and Ukrow (2020b), paras. 4–5.
301.
Similarly, Art 64(2) and (3) TFEU reference the principle of subsidiarity pursuant to Art 5(3) TEU when providing ‘without prejudice to the other Chapters of the Treaties’. However, at least in the realm of regulating FDI, the subsidiarity principle does not apply. The EU has the exclusive competence pursuant to Art 207(2) TFEU anyway (see Sect. 4.1). Pursuant to Art 5(3) TEU, the subsidiarity principle is limited to ‘areas which do not fall within [the EU’s] exclusive competence’.
302.
Streinz (2018), para. 44; Bast (2020), para. 67.
303.
Generally, the ECJ grants the EU legislator ‘broad discretion’ when determining the proportionality of exercising its competence through legislation. Hence, the ECJ only reviews decisions for ‘manifest errors’, see e.g. Case C-358/14 Poland v Parliament and Council [2016] EU:C:2016:323, paras. 78–79; Case C-643/15 Slovakia v Council [2017] EU:C:2017:631, paras. 123–124, 245–246.
304.
See also Hindelang (2009), pp. 303–304.
305.
Streinz (2018), para. 44; Bast (2020), para. 67. Nevertheless, Wojcik (2015b), para. 21, reads a proportionality test into the reference to Art 5(4) TEU that weighs the public interests behind the EU measure against individual interests and the general interest of capital liberalization.
306.
Sedlaczek and Züger (2018), para. 23.
307.
Contra Ress and Ukrow (2020b), para. 26, who argue that even though Art 64(2) and (3) TFEU lack the term ‘requisite’ as in Art 65(1)(b) TFEU, the proportionality principle must apply.
308.
Streinz (2018), para. 44; Bast (2020), para. 68.
309.
See e.g. Joined Cases C-92 and 93/09 Volker and Markus Schecke and Eifert [2010] EU:C:2010:662, paras. 45–46, 74; Joined Cases C-293 and 594/12 Digital Rights Ireland and Seitlinger and Others [2014] EU:C:2014:238, para. 46. For case law before the CFR had gained explicit legally binding status, see e.g. Joined Cases C-453/03, 11, 12, and 194/04 ABNA and Others [2005] EU:C:2005:741, paras. 67–68.
310.
Digital Rights Ireland and Seitlinger and Others (n. 309), para. 74. See also Case C-508/13 Estonia v Parliament and Council [2015] EU:C:2015:403, paras. 28–40.
311.
Bast (2020), para. 68.
312.
This seems to be consensus in literature, see Ohler (2002), Art 57 EGV, para. 22; Hindelang (2009), pp. 300–301; Sedlaczek and Züger (2018), para. 20; Korte (2019), p. 127.
313.
Ohler (2002), Art 57 EGV, para. 22; Hindelang (2009), pp. 300–301.
314.
Ress and Ukrow (2020b), para. 24. Agreeing Hindelang (2009), p. 300; Sedlaczek and Züger (2018), para. 20.
315.
Hindelang (2009), pp. 300–301, n. 174. Similarly, Günther (2018), p. 20.
316.
Some authors may at least allow measures that harmonize grandfathered Member State restrictions Korte (2019), p. 129, sees the harmonization of grandfathered Member State restrictions as the prime example for Art 64(2) TFEU.
317.
Sedlaczek and Züger (2018), para. 20; Korte (2019), p. 127. Implied by Ohler (2002), Art 57 EGV, para. 22.
318.
Ohler (2002), Art 57 EGV, para. 22; Sedlaczek and Züger (2018), para. 20.
319.
Hindelang (2009), pp. 300–301.
320.
Sedlaczek and Züger (2018), para. 20.
321.
For the definition of the screening ground see Sect. 3.1.
322.
For the definition of Foreign investor see Sect. 2.4.2.
323.
See the key judgements Case C-8/74 Dassonville [1974] EU:C:1974:82; Case C-120/78 Rewe v Bundesmonopolverwaltung für Branntwein [1979] EU:C:1979:42 (hereafter Cassis de Dijon), as well as the related analysis in Sect. 3.2.1.
324.
See analysis in Sect. 3.2.1.1.2.
325.
This ground of exception applies to all relevant Fundamental rights, Ashiagbor (2014), para. 15.35; Everson and Gonçalves (2014), paras. 16.51–16.52; Torremans (2014), paras. 17.64–17.65. On Art 21 CFR Kilapatrick (2014), paras. 21.32–21.39, 21.81, who seems to imply that Art 52(1) CFR applies to Art 21(2) CFR. However, there is no reason why Art 52(1) CFR should not allow the discrimination between EU citizens and third-country nationals.
326.
See Sect. 4.2.5.2.2.
327.
Lenaerts (2012), p. 391; Peers and Prechal (2014), para. 52.47.
328.
More detailed on the proportionality test in Art 52(1) TFEU, see e.g. Peers and Prechal (2014), paras. 52.65–52.82.
329.
A third option may be FDI Screening mechanisms based on the unwritten ground of exception of ‘overriding reasons in the public interest’. However, as discussed, this ground of exception is significantly limited in two ways. First, the interests that may be pursued are still narrow, in particular regarding ‘economic interests’ as defined by the ECJ. Second, it is still prevailing opinion that the unwritten ground of exception does not apply to open discriminations. FDI Screening mechanisms, however, openly discriminate against third-country FDI vis-à-vis intra-EU FDI.
330.
Art 47 TEU.
331.
Art 3(5) TEU.
332.
Here and in the following sections, ‘establishment’ is used in an untechnical way, neither referring to Art 49 TFEU, nor any specific notion of International economic law. It overlaps, but must not necessarily be identical with the notion of FDI.
333.
In German scholarship, the German FDI screening measures are usually found to be compliant with Public international law; see for the most detailed discussion, Geiger (2013), ch 8; more briefly Tietje (2007), pp. 4, 9; Martini (2008), pp. 320–321; Nettesheim (2008), pp. 738–739.
334.
In accordance with Regulation (EU) No 1219/2012 of the European Parliament and of the Council of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries (BIT Transition Regulation) [2012] OJ L 351/40, arts 3, pp. 7–11, there are still around 1300 Member State BITs in place; and new ones are being negotiated. See Commission, ‘Report on the Application of Regulation (EU) No 1219/2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries’ COM (2020) 134 final, pp. 2–4, on Member State BITs with third countries that Member States kept in place after the Lisbon Treaty, as well as on the number of authorization requests for new BITs. For an overview of all Member State BITs currently in place or negotiated, see Commission, ‘List of the Bilateral Investment Agreements referred to in Article 4(1) of Regulation (EU) No 1219/2012 of the European Parliament and of the Council establishing transitional arrangements for bilateral investment agreements between Member States and third countries: Notices of Member States’ OJ C 198/1 (2019). The BITs are progressively replaced with new agreements concluded by the EU (BIT Transition Regulation (n. 334), art 3, recitals 5–6).
335.
This approach ensures that only the IPA must be ratified by Member States, while the FTA can be adopted more quickly. Only the IPA-covered fields portfolio investment and state-investor arbitration tribunals are fields of mixed competence (EU-Singapore Free Trade Agreement (n. 4), paras. 238, 244, 293, 304). The EU FTAs with Singapore and Vietnam are recent examples of this approach.
336.
This assumption is also implied by de Melo (2020), p. 600.
337.
Martini (2008), p. 321; Commission, ‘Towards a Comprehensive European International Investment Policy’ (Communication) COM (2010) 343 final, p. 5; Alschner (2013), pp. 469–470. Alschner also highlights one Member State BIT that includes pre-establishment protection, Art 4(2) of the 2005 Belgium-Luxembourg-Democratic Republic of the Congo BIT, see Alschner (2013), n. 70.
338.
See e.g. the definitions of scope in Art 2.1.1(b) of the EU-Vietnam IPA (‘This Chapter applies to … investors with respect to the operation of their covered investment.’ (emphasis added). The EU-Singapore IPA takes a slightly different approach by first limiting covered investors to persons who have made an investment (Art 1.2.2), and including the limitation to the post-establishment phase into the substantial obligations; see e.g. NT obligation in Art 2.3.1, which is limited ‘to the operation, management, conduct, maintenance, use, enjoyment and sale or other disposal of their investments’. Cf Titi (2018), pp. 7–8.
339.
In Art 8.2.1(f) EU-Vietnam FTA; Art 8.8(d) EU-Singapore FTA; Art 7.9(a) EU-South Korea FTA, the FTAs all exclude Investor-State arbitration for establishment disputes.
340.
For the terms Non-EU Company and Non-EU Established SPV, see Sect. 4.2.2.1.1.
341.
The EU SPV itself will often not qualify as an investor of the other party to the agreement, since it is already established in the EU. Thus, many EU SPVs do not constitute an investor within the meaning of the BIT or IPA.
342.
See definition of FDI Screening mechanism in Sect. 2.4.3.
343.
Herrmann and Streinz (2014), para. 57. This is also highlighted by Case C-104/81 Kupferberg [1982] EU:C:1982:362, para. 13, when stating that by complying with an international agreement the Member States do not only fulfil an obligation vis-à-vis the ‘non-member country concerned but also and above all in relation to the Community which has assumed responsibility for the due performance of the agreement’.
344.
In the WTO both the EU and Member States are members (‘parallel membership’). This is due to the mixed competences between EC and Member States at the time of conclusion of the WTO-Agreement. The ECJ found that the EC only had the competence to conclude the GATT, but not GATS and TRIPS (see Accords annexés à l’accord OMC (n. 226), paras. 34, 47, 54, 98, 71, 105. Even with the extended EU Common commercial policy, the lines of competences between EU and Member States remain blurred, see e.g. Herrmann and Streinz (2014), paras. 61–72. The parallel membership is therefore still necessary.
345.
Both the EU (Art 47 TEU) and the EC (Art 210 EEC, Art 281 EC) have or had legal personality, and therefore could and did conclude international agreements in their own capacity.
346.
See Art 26 and recital 3 to the VCLT. See also Schmalenbach (2018), para. 4.
347.
Case C-181/73 Haegeman [1974] EU:C:1974:41, paras. 3–5, on the TRIPS, but the reasoning is applicable to all WTO agreements.
348.
Art 228(7) EEC and Art 300(7) EC provided the same effect for the EC before the Lisbon Treaty.
349.
Case C-308/06 Intertanko and Others [2008] EU:C:2008:312, para. 42, with further references. The ECJ based its reasoning on Art 300(7) EC, today Art 216(2) TFEU. See also Rosas (2008), pp. 77–78; Herrmann and Streinz (2014), para. 112.
350.
See e.g. on a bilateral trade agreements Kupferberg (n. 343), paras. 11–12.
351.
Joined Cases C-659/13 and 34/14 C&J Clark International [2016] EU:C:2016:74, para. 84. In settled case law the ECJ often denies its jurisdiction for reviewing secondary law on the basis of international agreements, see e.g. Intertanko and Others (n. 349), paras. 43–45. Only if the agreement is directly applicable and has direct effect, does the ECJ review whether the secondary law at issue violates the agreement. In principle, the ECJ denies direct applicability and effect for WTO-Agreements (Case C-149/96 Portugal v Council [1999] EU:C:1999:574, paras. 42–48; Case C-377/02 Van Parys [2005] EU:C:2005:121, para. 39; Joined Cases C-120 an 121/06 P FIAMM and Others v Council and Commission [2008] EU:C:2008:476, para. 111). One exception to this rule on WTO law applies if the EU measure itself expressly refers to WTO law (see Portugal v Council [1999] (n. 351), para. 49; Van Parys (n. 351), para. 40; C&J Clark International (n. 351), para. 87). This exception’s condition is arguably met by the Screening Regulation, which references Arts XIV(a) and XIVbis(1)(b) GATS, see also Sect. 3.1.1. On the other hand, the ECJ seems to recognize direct applicability and effect of bilateral agreements (Kupferberg (n. 343), paras. 11–12; Maresceau (2013), p. 698). At least in objective annulment proceedings, it is unconvincing that the ECJ rejects to review secondary law on the basis of international law that is binding upon the EU, see Thym (2009), para. 459; Herrmann and Streinz (2014), para. 125. With a detailed analysis of this controversy, see e.g. Jacobs (2011); de La Rochère (2013); Lenaerts (2014).
352.
Of course, the ECJ has the competence to review the application of the Screening Regulation’s screening ground ‘security or public order’ even if it references Arts XIVbis(1)(b) and XIV(a) GATS.
353.
OECD Convention, Supplementary Protocol No 1.
354.
Art 5(a) of the OECD Convention.
355.
With a view to progressively abolishing these reservations on FDI, OECD members are not allowed to lodge new reservations on FDI. This prohibition only applies to the capital movements listed in List A of Annex A, and therefore not only to FDI, but also e.g. to the sale of real estates and the admission of certain foreign securities. OECD members may always add reservations regarding capital movement listed in List B of Annex A, e.g. building or purchasing real estate.
356.
See list of reservations in Annex B of e.g. Austria, Belgium, Czech Republic, France, and Germany.
357.
Art 3 OECD Code of Capital Movements: ‘The provisions of this Code shall not prevent a Member from taking action which it considers necessary for: i) the maintenance of public order or the protection of public health, morals and safety; ii) the protection of its essential security interests; iii) the fulfilment of its obligations relating to international peace and security.’
358.
A third aspect is that the OECD Code of Capital Movements has no enforcement mechanism such as the dispute settlement mechanisms of panels and Appellate Body in the WTO. Direct consequences for Member States violating the OECD Code of Capital Movements are therefore limited. However, the EU would act against its own principles if accepting that its FDI Screening mechanism drives Member States into violating the OECD Code of Capital Movements. See Art 3(5) TEU: ‘shall contribute to … the strict observance … of international law’.
359.
For a list and summary of the 35 major trade agreements see Commission, ‘Report on Implementation of EU Free Trade Agreements: 1 January 2018 - 31 December 2018’ COM (2019) 455 final, pp. 2–3.
360.
See definition in Sects. 2.4.1 and 2.4.3.
361.
See e.g. Arts 8.2.1(f) EU-Vietnam FTA; 8.8(d) EU-Singapore FTA; 7.9(a) EU-South Korea FTA.
362.
The most prominent tool, Investor-State arbitration, is usually limited to post-establishment rights, see n. 339.
363.
Commission, ‘EU-China Comprehensive Agreement on Investment: The Agreement in Principle’ (30 December 2020) <https://trade.ec.europa.eu/doclib/cfm/doclib_section.cfm?sec=120> accessed 2 February 2022.
364.
Art 8.2.1(f) EU-Vietnam FTA.
365.
The definition excludes the operation of the establishment, since this would address investment protection after the establishment, which is only covered by the EU-Vietnam IPA.
366.
Art 8.2.1(h) EU-Vietnam FTA defines investor as ‘a natural person or a juridical person of a Party that seeks to establish …, is establishing or has established an enterprise in the territory of the other Party’. ‘“Juridical person of a Party” means a juridical person of the Union or a juridical person of Viet Nam, set up in accordance with the domestic laws and regulations of the Union or its Member States, or of Viet Nam, respectively, and engaged in substantive business operations … in the territory of the Union or of Viet Nam, respectively’ (Art 8.2.1(j) EU-Vietnam FTA). ‘“juridical person” means any legal entity duly constituted or otherwise organised under applicable law, whether for profit or otherwise, and whether privately-owned or governmentally-owned, including any corporation, trust, partnership, joint venture, sole proprietorship or association’. (Art 8.2.1(i) EU-Vietnam FTA).
367.
For easier reading the more untechnical terms ‘Vietnamese investor’ and ‘EU investor’ are used instead of ‘investor of Vietnam’ or ‘investor of the EU’, see for these terms Art 8.2(j), (l) EU-Vietnam FTA.
368.
In Art 8.4 EU-Vietnam FTA, the EU also commits to grant investors from Vietnam market access. Art 8.4 EU-Vietnam FTA is drafted similarly to Art XVI GATS. As is argued under Art XVI GATS, the screening of FDI on the basis of qualitative, not quantitative criteria does not constitute a market access restriction within the meaning of Art XVI GATS, and thus most likely neither within the meaning Art 8.4 EU-Vietnam FTA. See Sect. 4.3.4.1. Moreover, Art 8.19 EU-Vietnam FTA on ‘Domestic Regulation’ provides certain soft, procedural obligations for ‘licensing requirements’ and ‘qualification requirements’, such as the objectivity and transparency of criteria. FDI Screening mechanisms may qualify as such requirements. However, the softer obligations in Art 8.19 EU-Vietnam FTA can only apply if the entire measure is not discriminatory, and thus already prohibited by the NT obligation in Art 8.5.1 EU-Vietnam FTA. Again, the same issue arises under Art VI(5) GATS, which will be discussed in more detail in Sect. 4.3.4.3. Therefore, the following discussion is limited to the NT commitment. In addition, in Art 8.6.1 EU-Vietnam FTA, the EU commits to treat investors from Vietnam not less favourable than investors of any other country—however, only relating to the operation of the establishment, not the establishment itself.
369.
See again the definition of ‘juridical person’ in Art 8.2.1(i) in conjunction with (h), cited in n. 366.
370.
See in particular Arts 10.3.3, 11.4.1, 11.5 EU-Vietnam FTA.
371.
Art 8.3.2(a), (b), (f) EU-Vietnam FTA.
372.
See EU schedule of commitments in Appendix 8-A-2 to the EU-Vietnam FTA.
373.
See e.g. Arts 8.1.2 and 13.2.1(b) EU-Vietnam FTA.
374.
This is namely demonstrated by the definition of investor in Art 8.1 CETA as an investor who ‘seeks to make, is making or has made an investment’ (cf Titi (2018), p. 7). With the integration of FTA and IPA the parties did not expand the investor rights regarding investment protection and investor-state arbitration to the pre-establishment phase. This is explicitly stated by Art 8.2.4 CETA. These additional investor rights in the realm of investment protection do therefore not limit the EU’s flexibility to screen FDI.
375.
As in the EU-Vietnam FTA, the commitment to granting market access to foreign investors in Art 8.4.1 CETA is drafted similarly to Art XVI GATS. Therefore, the commitment does arguably not prohibit FDI Screening mechanism, which are based on qualitative, not quantitative criteria; see n. 368 and Sect. 4.3.4.1. Similarly, the EU’s obligations on ‘Domestic Regulation’ in Art 12.13 CETA do not apply, since the FDI Screening mechanisms already constitute NT discrimination pursuant to Art 8.6.1 CETA; see also n. 368 and Sect. 4.3.4.3. Accordingly, Canada schedules its own FDI screening mechanism, the Investment Canada Act (as amended) 1985, as a reservation to NT, not Domestic regulation (Reservation I-C-1 in Canada’s schedule to Annex I). Admittedly, the same reservation is scheduled to Market access. The Market access reservation, however, is due to the Economic needs test that is also included in the Investment Canada Act.
376.
For easier reading the following uses the more untechnical terms ‘Canadian investor’ and ‘EU investor’ instead of ‘investor of Canada or ‘investor of the EU’, see for these terms Art 8.1 CETA.
377.
As CETA integrates FTA and IPA, the scope of its investment chapter does not differentiate between establishment and operation. Instead, Art 8.1 CETA generally defines investment as ‘every kind of asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, which includes a certain duration and other characteristics such as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk’. Art 8.1 CETA then adds a non-exhaustive list of examples.
378.
Nevertheless, the parties also exempted a small number of sectors generally from their investment liberalization commitments. The EU exempted audio-visual services, Canada cultural industries (Art 8.2.3 CETA). Regarding establishment and the acquisition of establishments, the parties further exempted the sectors of air transport services and activities as governmental authority (Art 8.2.2 CETA).
379.
Pursuant to Art 8.2.2 these services are air services and related services, as well as ‘activities carried out in the exercise of governmental authority’. They are thus similar to those excluded in the EU-Vietnam FTA, except for audiovisual services.
380.
In its schedule to Annex II the EU namely scheduled exceptions for investment liberalization for public utilities; the collection, purification, and distribution of water; certain business services such as legal and telecommunication services; cultural, educational, social, and health services; as well as certain transport and energy services.
381.
See preamble and Arts 23.2 and 24.3 CETA.
382.
Interestingly, however, in the chapter on liberalizing investment the right to regulate is only explicitly addressed for the section of investment protection, and thus not regarding the NT and MFN obligations for investor establishment in Arts 8.6.1 and 8.7.1 CETA; see Art 8.9.1 CETA.
383.
Art 28.6 CETA.
384.
See namely Arts 17.2, 17.3, 18.4, 18.5 CETA.
385.
For the notion ‘systemic rival’ see Commission and High Representative of the Union for Foreign Affairs and Security Policy, ‘EU-China - A Strategic outlook’ (Joint Communication) JOIN (2015), pp. 1, 5, reaffirmed by European Council, ‘Conclusions of European Council Meeting (1 and 2 October 2020)’ EUCO 13/20, para. 26.
386.
Art FINPROV.11(2) EU-UK Trade and Cooperation Agreement, only until 28 February 2021 if not subsequently agreed otherwise or ratified before.
387.
Art SERVIN.1.2(h), (j) EU-UK Trade and Cooperation Agreement.
388.
As in the EU-Vietnam FTA and CETA, the EU also commits to granting market access to foreign investors in Art SERVIN.2.2 EU-UK Trade and Cooperation Agreement. This provision is drafted similarly to Art XVI GATS. Therefore, the commitment does arguably not prohibit FDI Screening mechanism, which are based on qualitative, not quantitative criteria, see n. 368 and Sect. 4.3.4.1. Similarly, the EU’s obligations on ‘Domestic Regulation’ in Arts SERVIN.5.2-5.11 EU-UK Trade and Cooperation Agreement do not apply, since the FDI Screening mechanisms already constitute NT discrimination pursuant to Art SERVIN.2.3 EU-UK Trade and Cooperation Agreement; see also n. 368 and Sect. 4.3.4.3.
389.
E.g., across sectors for privatized public utilities (Annex SERVIN-2 Reservation No 1(a) of the EU-UK Trade and Cooperation Agreement); arms, munition, and war materials (Annex SERVIN-2, Reservation No 1(e)); as well as in the subsectors of legal services (Annex SERVIN-1 Reservation No 2(a)); auditing services (Annex SERVIN-1 Reservation No 2(d)); railway passenger transportation (Annex SERVIN-2 Reservation 20(d)). In addition, different Member States added reservations in different sectors. The sectors transport and certain related services, audiovisual services, national maritime cabotage, and inland waterways transport are entirely exempted from commitments in the title ‘Services and Investment’.
390.
Art EXC.1(1) EU-UK Trade and Cooperation Agreement incorporates Art XX GATT 1994 and Art EXC.1(2) is nearly identical to Art XIV GATS. Art EXC.4 reflects Art XXI GATT 1994 and Art XIVbis GATS, with Art EXC.4(b)(i) having a slightly broader wording than its WTO counterparts: …connected to the production of or traffic in arms, ammunition and implements of war and to such production, traffic and transactions in other goods and materials, services and technology, and to economic activities, carried out directly or indirectly for the purpose of supplying a military establishment (emphasis added).
391.
Commission, ‘Agreement in Principle on EU-China CAI’ (n. 363).
392.
See e.g. Ni (2021).
393.
See ‘EU-China Comprehensive Agreement on Investment (CAI): list of sections’, <https://trade.ec.europa.eu/doclib/press/index.cfm?id=2237> accessed 2 February 2022.
394.
Commission, ‘Agreement in Principle on EU-China CAI’ (n. 363).
395.
See Art 1(1) of Section II EU-China CAI, and the definition of establishment and operation in Art 2 of Section I EU-China CAI.
396.
As in the EU-Vietnam FTA, CETA, and the EU-UK Trade and Cooperation Agreement, the EU also commits to granting market access to foreign investors in Art 2 of Section II EU-China CAI. As in the other agreements, the provision is drafted similarly to Art XVI GATS. Therefore, the commitment does arguably not prohibit FDI Screening mechanism, which are based on qualitative, not quantitative criteria, see n. 368 and Sect. 4.3.4.1. Similarly, the EU’s obligations on ‘Domestic Regulation’ in Section III EU-China CAI do not apply, since the FDI Screening mechanisms already constitute NT discrimination pursuant to Art 4(1) EU-China CAI; see also n. 368 and Sect. 4.3.4.3.
397.
See Art 2 of Section I EU-China CAI: ‘“establishment” means the setting up, including the acquisition [footnote 1], of an enterprise in China or in the EU respectively with a view to establishing or maintaining lasting economic links’. Footnote 1 adds: ‘The term “acquisition” shall be understood as including capital participation in an enterprise with a view to establishing or maintaining lasting economic links.’ For the definition of FDI for the purposes of this book see Sect. 2.4.1.
398.
For easier reading the untechnical terms ‘Chinese investor’ and ‘EU investor’ are used instead of ‘investor of China’ or ‘investor of the EU’, see for these terms Art 2 of Section II EU-China CAI.
399.
See preamble and Art 1(2) of Section I EU-China CAI.
400.
Art 1(2) of Section II EU-China CAI exempts audio-visual services, certain air transport services, and activities supplied in the exercise of governmental authority from investment liberalization obligations.
401.
See Art 4(1) and (2) of Section VI EU-China CAI, which reflect Art XIV GATS and incorporate Art XX GATT 1994. Art 10 of Section VI EU-China CAI reflects the security exceptions in Art XXI GATT 1994 and Art XIVbis GATS, with a slightly broader wording than its WTO counterparts; cf Art EXC.4(b)(i) of the EU-UK Trade and Cooperation Agreement as analyzed in n. 390.
402.
See in more detail Sects. 4.3.4.2 and 4.3.4.4.
403.
Commission, ‘Agreement in Principle on EU-China CAI’ (n. 363), p. 2.
404.
Art 3bis(3) of Section II EU-China CAI.
405.
Overall, the WTO has 164 members, reduced by the EU and its Member States, 136 members remain.
406.
See Arts II(1), XI(1), XIV(1) WTO-Agreement, and n. 344.
407.
Art II(1), (2) WTO-Agreement.
408.
Arts I(1), III(1), (2), (4), XI(1), XIII GATT 1994.
409.
China—Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, Appellate Body Report (21 December 2009) WT/DS363/AB/R, WTO Online Database doc no 09-6642, para. 227.
410.
See e.g. India—Certain Measures Relating to Solar Cells and Solar Modules, Panel Report (24 February 2016) WT/DS456/R, as modified by Appellate Body Report WT/DS456/AB/R, WTO Online Database doc no 15-6724, paras. 7.195–7.198 (on requirements to use a minimum amount of domestically produced auto parts and components); already on Art III(4) GATT 1947, Canada—FIRA (n. 2), paras. 5.8–5.11 (on investor undertakings to purchase goods of Canadian origin and from Canadian suppliers; investors committed deliberately to these undertakings in order to improve their chances for authorization in the Canadian FDI screening procedure). For further examples of panel reports see China—Publications and Audiovisual Products (n. 409), n. 432.
411.
Canada—FIRA (n. 2), para. 5.21.
412.
Art 1 TRIMs Agreement.
413.
Brazil—Certain Measures Concerning Taxation and Charges, Panel Report (30 August 2017) WT/DS472/R and WT/DS497/R, as modified by Appellate Body Report WT/DS472/AB/R and WT/DS497/AB/R, WTO Online Database doc no 17-4582, para. 7.39. The overlap is mainly due to the fact that the TRIMs Agreement merely clarifies that the prohibition of quantitative restrictions and NT discrimination in Arts XI(1) and III(4) GATT 1994 also applies to investment-related measures.
414.
Canada—Measures Relating to the Feed-in Tariff Program, Appellate Body Report (6 May 2013) WT/DS412/AB/R and WT/DS426/AB/R, WTO Online Database doc no 13-2400, paras. 5.24, 5.26, 5.94, 5.103; Brazil—Taxation, Panel Report (n. 413), para. 7.40. On appeal, in Brazil—Certain Measures Concerning Taxation and Charges, Appellate Body Report (13 December 2018) WT/DS472/AB/R and WT/DS497/AB/R, WTO Online Database doc no 18-7793, paras. 5.62–5.64, 5.77–5.79, the Appellate Body also focused on assessing Art III(4) GATT 1994. Regarding Art 2(1) TRIMs Agreement, it held that Brazil did not submit any further arguments. One may therefore argue that the Appellate Body upheld the panel’s characterization of the relation between GATT 1994 and TRIMs Agreement.
415.
Trade-balance requirements seek to ensure that the host state’s balance of imports and exports is intact, and therefore require the investor to import and/or export goods of a certain value.
416.
Annex to TRIMs Agreement. See e.g. Canada—Feed-In Tariff Program (n. 414), para. 7.111 (on a minimum local content requirement on electricity generators using solar and windpower technologies); India—Solar Cells, Panel Report (n. 410), para. 7.63 (on local content requirement to use specific local goods to be eligible for bidding in a national solar energy bidding process). India’s appeal in India—Solar Cells did not further address the TRIMs Agreement (India—Certain Measures relating to Solar Cells and Solar Modules, Appellate Body Report (16 September 2016) WT/DS456/AB/R, WTO Online Database doc no 16-4918, para. 5.12).
417.
Trebilcock et al. (2013), p. 584.
418.
Canada—FIRA (n. 2), paras. 5.4–5.6, arguing that the investor does so only to raise her chances that the screening authority authorizes the investment.
419.
Chaisse (2012), p. 163; Heinemann (2012), p. 854, n. 54. In Brazil—Taxation, Brazil did not raise this issue by arguing that ‘pre-market’ measures directed at producers not goods are not covered by Art III GATT 1994. In this sense, the notion ‘pre-market’ was only intended to differentiate between producer- and good-related measures (see Brazil—Taxation, Panel Report (n. 413), paras. 7.61–7.70; Brazil—Taxation, Appellate Body Report (n. 414), para. 5.80).
420.
Similarly, Trebilcock et al. (2013), p. 584. Otherwise important developing countries would not have agreed to the TRIMs Agreement, see their ‘Draft Declaration on Trade-Related Investment Measures’ as paraphrased in Croome (1999), p. 222.
421.
Croome (1999), pp. 116–117, 219–223, 267–268; Heinemann (2012), p. 85, n. 51.
422.
On the failure to conclude the Multilateral Investment Treaty within the OECD, see e.g. Böhmer (1998), p. 267. On the later developments and discussion around a multilateral set of investment rules in the WTO, see e.g. Sauvé (2006), p. 325; Wolf (2008), pp. 74–80. Current plurilateral Structural Discussions on a multilateral framework on investment facilitation for development focus on procedures and cooperation, excluding the fundamental issues of market access and investment protection (see WTO members Afghanistan and others, ‘Joint Ministerial Statement on Investment Facilitation for Development’ WT/L/1072/Rev.1).
423.
With the same result Lecheler and Germelmann (2010), p. 103; Geiger (2013), p. 286; Fassion and Natens (2020), pp. 123–124, 131–132.
424.
Cf Malbon et al. (2014), para. 1.05.
425.
See e.g. Elfring (2009), paras. 1–3. See also Malbon et al. (2014), paras. 3.03–3.07.
426.
Malbon et al. (2014), paras. 7.15–7.22, argue that Art 7 TRIPS Agreement, in conjunction with inter alia Art 8 TRIPS Agreement, provides context to the agreement’s interpretation (‘any ambiguities in the Agreement are to be read in favour of an interpretation of TRIPS provisions that advances the social and economic conditions of all [WTO] [m]embers’). Malbon et al. (2014), paras. 8.08–8.10, also read Art 8 TRIPS Agreement as ensuring that TRIPS Agreement provisions are interpreted not only from a pure trade perspective, but in light of all principles addressed in Art 8 TRIPS Agreement.
427.
For a summary of the EU and Member States concerns vis-à-vis foreign investors, see Sect. 2.1.
428.
Also emphasizing this flexibility of WTO members to impose ‘investment-policy-related measures on foreign patent-holders’, Trebilcock et al. (2013), p. 529.
429.
Adlung and Mattoo (2008), p. 64.
430.
WTO Member schedules are based on Art XX GATS. The following will refer to commitments of the EU. This is meant to include those commitments that were originally undertaken by the Member States before the EU obtained exclusive competence for Common commercial policy pursuant to Art 207(1) TFEU. Today, only Bulgaria, Croatia, and Romania maintain their own schedule. All other Member States commitments were merged into the ‘EU Schedule’, with differing terms, limitations, conditions, and qualifications among Member States in some cases. In the following, this book will refer to the ‘EU commitments’ as comprising all Member state commitments as scheduled in the ‘EU Schedule’. Accordingly, when saying the EU committed to NT or Market access in certain sectors, this would include all Member States. This is in line with the EU’s competence for trade policy pursuant to Art 207, para. 1 TFEU. Referring to EU commitments as in the EU Schedule, this book will, however, exclude the commitments of Bulgaria, Croatia, and Romania. Including their additional three schedules would further complicate the already complex and fragmented EU commitments.
431.
Arts XIV(a) and XIVbis(1)(b) GATS, for their analysis see Sect. 3.1.
432.
In Canada—Certain Measures Affecting the Automotive Industry, Appellate Body Report (31 May 2000) WT/DS139/AB/R and WT/DS142/AB/R, WTO Online Database doc no 00-2170, para. 152, the Appellate Body called this the ‘threshold question’ of the GATS.
433.
See Arts I(2)(c) and XXVIII(d)(i) GATS.
434.
A similar, but different question is whether the adjudicating bodies have jurisdiction over a measure. This depends on the interpretation of Art 3.3 DSU. It provides that ‘measures taken by another Member’ should be promptly settled. The Appellate Body held: ‘In principle, any act or omission attributable to a WTO Member can be a measure of that Member for purposes of dispute settlement proceedings.’ (United States—Sunset Review of Anti-Dumping Duties on Corrosion-Resistant Carbon Steel Flat Products from Japan, Appellate Body Report (15 December 2003) WT/DS244/AB/R, WTO Online Database doc no 03-6603, para. 81). It suffices that instruments have general or prospective application, irrespective of their application to particular instances. There are two main arguments. First, WTO law also protects the security and predictability of future trade. Second, from a judicial economy perspective, it seems overly burdensome to oblige WTO members to litigate only single instances of concrete measure application, rather than the underlying abstract measure. See US—Corrosion-Resistant Steel Sunset Review (n. 434), para. 82, with further references to panel reports.
435.
See European Union and its Member States—Certain Measures Relating to the Energy Sector, Panel Report (10 August 2018) WT/DS476/R, WTO Online Database doc no 18-5025, paras. 7.387–7.389.
436.
Art 3, para. 1, recital 8 of Screening Regulation.
437.
European Communities—Regime for the Importation, Sale and Distribution of Bananas, Appellate Body Report (9 September 1997) WT/DS27/AB/R, WTO Online Database doc no 97-3593, para. 220.
438.
ibid., paras. 217, 220, citing and upholding European Communities—Regime for the Importation, Sale and Distribution of Bananas (Complaint by the United States), Panel Report (22 May 1997) WT/DS27/R/USA, as modified by Appellate Body Report WT/DS27/AB/R, WTO Online Database doc no 97-2070, para. 7.285. The Appellate Body also held: ‘In our view, the use of the term “affecting” reflects the intent of the drafters to give a broad reach to the GATS. The ordinary meaning of the word “affecting” implies a measure that has “an effect on”, which indicates a broad scope of application.’ Based on this understanding, the Appellate Body also argues that the GATS scope is not limited by the scope of GATT 1994 (EC—Bananas III, Appellate Body Report (n. 437), para. 221; Canada—Autos, Appellate Body Report (n. 432), paras. 159–160). It is in this sense that the Appellate Body also refers to the interpretation of Art III(4) GATT1994 as context for interpretation, Argentina—Measures Relating to Trade in Goods and Services, Appellate Body Report (14 April 2016) WT/DS453/AB/R, WTO Online Database doc no 16-2077, para. 6.109. For the issue of delimitation between GATT 1994 and GATS, see Sect. 4.3.3.3.1, in particular n. 450.
439.
EC—Bananas III (US), Panel Report (n. 438), para. 7.281, n. 469, based on the preparatory work for the GATS in Group of Negotiations on Services, ‘Definitions in the Draft General Agreement on Trade in Services’ (Note by the Secretariat) MTN.GNS/W/139, para. 12: ‘The term “affecting” has been interpreted in Article III of the GATT to mean an effect on the competitive relationship between like products, not on the subsequent trade volumes in those products’.
440.
Nettesheim (2008), p. 739, seems to oppose this view by stating that only the individual FDI prohibition can violate the GATS obligations; agreeing with Nettesheim, Geiger (2013), p. 283.
441.
On the nature of WTO adjudicating bodies’ reports as precedents, see Chap. 3, n. 62.
442.
Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC [2009] OJ L 211/94, art 11(3)(b): ‘granting certification will not put at risk the security of energy supply of the Member State and the Community’.
443.
EU—Energy Package (n. 435), para. 7.1067.
444.
Argentina—Measures Relating to Trade in Goods and Services, Panel Report (30 September 2015) WT/DS453/R, as modified by Appellate Body Report WT/DS453/AB/R, WTO Online Database doc no 15-5027, para. 7.112.
445.
ibid., paras. 7.110–7.112.
446.
See definition of FDI Screening mechanisms in Sect. 2.4.3.
447.
One could argue that FDI screening also affects all other modes of supply, since FDI may also be undertaken to supply services through the other modes. For instance, it will most likely increase intra-firm services trade between the investor’s foreign establishment and its newly acquired commercial presence. This would constitute supply mode one (Art I(2)(a) GATS). Even investment-related movement of natural persons may be affected (see Descheemaeker (2016), pp. 272–274). It might be argued that FDI Screening mechanisms affect these modes indirectly within the broad meaning of ‘affecting’ as elaborated in Sect. 4.3.3.2. However, the investor’s and FDI Screening mechanisms’ evident purpose is to supply or address Mode Three trade. The other effects are thus very remote. Considering these mechanisms as also ‘affecting’ all other modes of supply would thus result in a too broad understanding of ‘affecting’ limiting the WTO members’ right to regulate too much.
448.
In the above listed order: Sectors 1. A. (e) and (f), B. (a) and (b), C. (a) and F. (i) of the Sectoral Classification List and EU Schedule.
449.
See also Abu-Akeel (1999), pp. 192–194.
450.
Though related, this question is different to the delimitation of trade in goods and trade in services. The latter issue often emerges in the context of a seemingly goods-related measure, such as tariffs or taxes based on goods import. In these cases, one could argue that the targeted good also entails a service, or that distribution service suppliers are affected because their opportunities to distribute this good are distorted. For the first example see Canada—Certain Measures Concerning Periodicals, Appellate Body Report (30 June 1997) WT/DS31/R/AB, WTO Online Database doc no 97-2653; China—Publications and Audiovisual Products (n. 409). For the second example see EC—Bananas III, Appellate Body Report (n. 437); Canada—Autos, Appellate Body Report (n. 432). On this subject see also Abu-Akeel (1999), pp. 194–196; Trebilcock et al. (2013), p. 494; Mavroidis (2016), p. 353.
451.
For MFN obligations there is the possibility to schedule sector-specific exemptions. These are, however, designed to expire after ten years (Art II(2) GATS and para. 6 of Annex on Article II Exemptions).
452.
See also on the possibly applicable trade mode for intra-firm trade, n. 447.
453.
This situation is slightly different for hospitals which usually also supply restaurant services to their customers. These may be seen as part of a medical treatment and thus hospital services, since they typically respect a certain diet depending on the patient’s health status. Hence, their characterization ultimately depends on the WTO member’s schedule of commitments.
454.
A related aspect is whether manufacturing itself can constitute a service, if done on a fee or contract basis for another firm (see 884-886 CPC; Council for Trade in Services, ‘Energy Services’ (Background Note by the Secretariat) S/C/W/311 (‘Background Note on Energy Services 2010’), paras. 52(a), 78(b)). Not only is this distinction generally acknowledged in the WTO for drawing the line between trade in services and goods (Yanovich (2011), p. 32). The EU also approves it implicitly by also referring to ‘Services incidental to manufacturing’ in 1.F. (i) in the EU Schedule, but not to manufacturing in itself.
455.
Art I(2)(c). For other affected modes of trade, see n. 449, 447.
456.
Services supplied through mode four (Art I(2)(d) GATS) are also supplied through presence in the territory of another WTO member.
457.
For trade in financial services, this has been clarified in the Understanding on Financial Services, sec D(2): ‘“Commercial presence” means an enterprise within a Member’s territory for the supply of financial services and includes wholly- or partly-owned subsidiaries’ (emphasis added).
458.
See for the similar issue of partial M&A transactions as establishment within the meaning of Art 49 TFEU, Sect. 4.2.3.2.2.
459.
Seemingly in favour of only total acquisition, Feinäugle (2008), para. 17.
460.
For the definition under EU primary law, see Sect. 4.2.3.2.2.
461.
Following this argument, a foreign investor A from Member Y could acquire 30% of the shares in a firm established in the EU, in which investor B from Member Z holds the other 70%. Even if one could argue that a 30% shareholding qualifies as a permanent presence and thus a commercial presence, A would not supply a service through this presence. Controlling only 30% of the shares, A does neither own, nor control the firm. For the purposes of the GATS, services supplied by the firm would be services supplied by Z.
462.
Descheemaeker (2016), p. 272 relies directly on Art XXVIII(m) and (n) GATS to define commercial presence. Chang et al. (1999), p. 100, implies this by citing the GATS definitions of ‘ownership’ and ‘control’. Art XXVIII(m) and (n) GATS are, however, primarily aimed at defining the origin of a service. This is, for instance, to determine the application of the denial-of-benefits clause in Art XXVII(c) GATS or of a Member-specific exemption to the MFN obligation. In the same vein, EC—Bananas III (US), Panel Report (n. 438), para. 7.295.
463.
See for the arguments to refer to Art 7 para. 1(a), 4 of the Market Abuse Regulation (n. 152), as well as for the thresholds of investor influence for FDI and establishment within the meaning of Art 49 TFEU Sect. 4.2.3.2.
464.
For definition of FDI for the purpose of this book see Sect. 2.4.1. In contrast, Hoekman (1995), fn. 5, seems to equate FDI and commercial presence.
465.
See EC—Bananas III (US), Panel Report (n. 438), para. 7.320, upheld by EC—Bananas III, Appellate Body Report (n. 437), paras. 225–228; Argentina—Financial Services, Panel Report (n. 444), paras. 7.88–7.94. The panel in Argentina—Financial Services correctly held that the Appellate Body in Canada—Autos did not reject the approach developed in EC—Bananas III. Having determined that there was in fact trade in wholesale trade services of motor vehicles, the Appellate Body in Canada—Autos upheld its prior finding. It only emphasized that the Panel would have had to assess whether the conditions of competition for these services were in fact affected. See Canada—Autos, Appellate Body Report (n. 432), paras. 157, 163–165; Argentina—Financial Services, Panel Report (n. 444), paras. 7.95–7.96.
466.
See Sect. 4.2.3.2.
467.
In the following, this book will refer to ‘EU commitments’ and the EU Schedule as explained in n. 430.
468.
For the definition of Case 1 and Case 2 FDI Screening mechanisms see Sect. 2.4.3.
469.
United States—Measures Affecting the Cross-Border Supply of Gambling and Betting Services, Appellate Body Report (7 April 2005) WT/DS285/AB/R, WTO Online Database doc no 05-1426, para. 215; Argentina—Financial Services, Appellate Body Report (n. 438), paras. 7.387–7.390. See also e.g. Delimatsis and Molinuevo (2008), paras. 2, 22, who rightly conclude that Market access in the GATS is a legally defined concept, and does not refer to the commonly used term ‘establishment’ or ‘admission’.
470.
See also Pauwelyn (2005), pp. 158–159, additionally arguing with the context Art VI GATS and the GATS preamble provide for Art XVI GATS.
471.
Scheduling Guidelines, para. 12; Mavroidis (2007), p. 4. For an example in Mode four, see the Canadian immigration test based on a labour market test, Canada, ‘Mode 4 Commitments and Economic Needs Tests’ (Communication from Canada to the Committee on Specific Commitments) S/CSC/W/47.
472.
Krajewski (2003), p. 89.
473.
For the possibility of an ecology impact test falling partially under Art XVI(2)(a) GATS, see ibid.
474.
For the categorization of service quality and service supplier qualification in light of the relationship to Art VI GATS, Pauwelyn (2005), p. 153.
475.
Scheduling Guidelines, para. 10. Indeed, the Scheduling Guidelines also seem to find that the Market access obligation is violated if the right to supply a service is uncertain. Uncertainty might exist where the FDI depends on the government’s individual admission decision. However, the Scheduling Guidelines (para. 8) only finds this to be the case if a license is granted ‘on a discretionary basis’, meaning without setting any criteria. In the same vain, Council for Trade in Services, ‘Economic Needs Test’ (Note by the Secretariat) S/CSS/W/118, paras. 6–7. Complemented by Addendums 1 and 2, the Secretariat Note lists all ‘economic needs’ tests that WTO members scheduled.
476.
Scheduling Guidelines, Annex 2, Attachment 1, para. XI. Annex 2 Attachment 1, para. VIII also lists authorization requirements for non-residents as restrictions of NT, not Market access.
477.
This applies to the vast majority of FDI Screening mechanisms in light of the concerns vis-à-vis foreign investors. The only exception would be screening mechanisms on the grounds of industrial policy that also take future economic needs into account in that, they would assess the future supply and demand for a specific service or service supplier. Council for Trade in Services, ‘Mode 3 – Commercial Presence’ (Background Note by the Secretariat) S/C/W/314, paras. 57–58, states that some WTO members scheduled some FDI Screening mechanisms as ‘economic needs tests’, implying that not all FDI screening mechanisms constitute such tests.
478.
US—Gambling, Appellate Body Report (n. 469), para. 232, held that the term ‘in the form of’ in Art XVI(2)(a) GATS should not be understood ‘to have the effect of’. The Appellate Body thus saw the risk of a too expansive interpretation of the list in Art XVI(2) GATS when taking into account a measure’s effect.
479.
ibid., para. 251. For a limitation on national service suppliers constituting ‘zero quotas’, and thus a limitation of the number of suppliers, see also Krajewski (2003), p. 86. He analyzes that such interpretation is in line with the WTO members’ scheduling practice.
480.
Cf Krajewski (2003), p. 86, who consults the WTO members schedules to interpret the notion ‘numerical quotas’ in Art XVI(2)(a) GATS.
481.
For instance, Finland (EU Schedule, p. 9), Ireland (EU Schedule on Financial Services, GATS/SC/31/Suppl.4/Rev.1, p. 15), Poland (EU Schedule, pp. 10–11) and Slovenia (EU Schedule, p. 11).
482.
Austria, Czech Republic (both EU Schedule, p. 11), Germany, Finland, Ireland (all EU Schedule, p. 12), Poland, Sweden and Slovakia (all EU Schedule, p. 13).
483.
See for example Cyprus on limitations on Market access (EU Schedule, p. 7): ‘The permission of the Central Bank is required for the participation of any non-resident in a corporate body or partnership in Cyprus. Foreign participation in all sectors/subsectors included in the Schedule of Commitments is normally limited up to 49 per cent.’ Accordingly, Cyprus bans all foreign participations above 49%, and requires permission for all other investments. France, under limitations on Market access, schedules the authorization of foreign investment as well as a fix limitation of foreign participation in newly privatized companies (EU Schedule, pp. 8–9). With a similar exception Italy and Portugal (EU Schedule, p. 10). Slightly different is Malta’s entry where a requirement of a legal form (‘local company’) is combined with a prior permission requirement (EU Schedule, p. 10). See also Canada (Canada’s schedule of specific GATS commitments, p. 2): ‘The acquisition of control of a Canadian business by a non-Canadian is subject to approval’. This refers to its ‘economic needs’ test which may take economic needs considerations into account, too, e.g. product variety and effects on competition (Investment Canada Act (n. 375) sec 20(c), (d)). See, last but not least, China did e.g. not commit to the establishment of foreign companies branches generally (China’s schedule of specific GATS commitments, p. 1).
484.
Reasons may be uncertainty about the legal nature of the measure or convenience to put all relevant exceptions to its specific commitments in one column. See also Krajewski (2003), p. 84, who terms such scheduling practice ‘simply a scheduling mistake’.
485.
Scheduling Guidelines, para. 10.
486.
US—Gambling, Appellate Body Report (n. 469), para. 251.
487.
Argentina—Financial Services, Panel Report (n. 444), para. 7.474, thus comes to the conclusion that ‘affecting the supply of services’ is closely linked to ‘affecting trade in services’. Accordingly, China—Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, Panel Report (12 August 2009) WT/DS363/R, as modified by Appellate Body Report WT/DS363/AB/R, WTO Online Database doc no 09-3798, para. 7.970; EU—Energy Package (n. 435), para. 7.736, held that the case law on the meaning of ‘affecting’ under Art I(1) GATS is applicable.
488.
This book will use the terminology of de jure and de facto discrimination. The latter is the broadest term to describe non-origin-based discrimination. There is, however, other terminology, such as formal and factual, explicit and implicit, as well as direct and indirect discrimination, see also Ehring (2002), p. 921, fn. 3. It is not always clear whether such different terminology stands for a different meaning. At least the term of indirect discrimination is narrower than a purely effect-based approach. Indirect discrimination compares the trade restrictive effects of the differentiating measure based on a non-origin criterion to the effects of the same measure, but hypothetically differentiating based on origin, Eeckhout (2001), pp. 233–234; Krajewski (2003), p. 108. De Búrca (2002), p. 187; on the other hand, defines indirect discrimination as a measure that results in disadvantageous treatment of one group over the other. Her approach is therefore limited to the differential effects, and could thus also be termed factual discrimination.
489.
To be sure, the definition of a ‘juridical person of another Member’ for commercial presence pursuant to Art XXVIII(m)(ii) GATS is not at issue here. This provision only defines when an already established commercial presence constitutes the establishment of a foreign service supplier. On this basis, it can then be assessed whether the WTO member in which the foreign service supplier is so established violated any GATS obligation vis-à-vis supplier.
490.
Argentina—Financial Services, Appellate Body Report (n. 438), para. 6.40, also refers to Arts XXVIII(f), (g), and (k) through (n) GATS to define origin within the meaning of the MFN and NT obligation.
491.
ibid., para. 6.38.
492.
Regan (2006), p. 202.
493.
Argentina—Financial Services, Appellate Body Report (n. 438), para. 6.45.
494.
ibid. It is remarkable that this threshold is rather low to rebut the presumption of likeness. The respondent must not demonstrate that the domestic and foreign services and service supplies are not like.
495.
ibid., para. 6.36. On Art III(2) GATT 1994: Argentina—Measures Affecting the Export of Bovine Hides and the Import of Finished Leather, Panel Report (19 December 2000) WT/DS155/R, WTO Online Database doc no 00-5282, paras. 11.168–11.170; China—Measures Affecting Imports of Automobile Parts, Panel Report (18 July 2008) WT/DS339/R, WT/DS340/R, and WT/DS342/R, as modified by Appellate Body Report WT/DS339/AB/R, WT/DS340/AB/R, and WT/DS342/AB/R, WTO Online Database doc no 08-3275, para. 7.216. On Art III(4) GATT 1994: Canada—Certain Measures Affecting the Automotive Industry, Panel Report (11 February 2000) WT/DS139/R and WT/DS142/R, as modified by Appellate Body Report WT/DS139/AB/R and WT/DS142/AB/R, WTO Online Database doc no 00-0455, paras. 2.15–2.18, 10.74; Argentina—Measures Affecting the Importation of Goods, Panel Report (22 August 2014) WT/DS438/R, WT/DS444/R, and WT/DS445/R, as modified by Appellate Body Report WT/DS438/AB/R, WT/DS444/AB/R, and WT/DS445/AB/R, WTO Online Database doc no 14-4794, paras. 6.274–6.275. On Art I(1) GATT 1994: Colombia—Indicative Prices and Restrictions on Ports of Entry, Panel Report (27 April 2009) WT/DS366/R, WTO Online Database doc no 09-1865, para. 7.355; United States—Certain Measures Affecting Imports of Poultry from China, Panel Report (29 September 2010) WT/DS392/R, WTO Online Database doc no 10-4731, paras. 7.430–7.431.
496.
Indonesia—Certain Measures Affecting the Automobile Industry, Panel Report (2 July 1998) WT/DS54/R, WT/DS55/R, WT/DS59/R, and WT/DS64/R, WTO Online Database doc no 98-2505, para. 14.113, cited by Colombia—Ports of Entry (n. 495), para. 7.182. See also Ortino (2004), pp. 124–135, including a summary of relevant case law.
497.
Regan (2006), pp. 201–202; Ortino (2008), p. 198. See also Ortino (2004), pp. 135, 148. Seemingly contra Delimatsis and Hoekman (2018), p. 277.
498.
See Sect. 2.4.3.
499.
See e.g. China—Certain Measures Affecting Electronic Payment Services, Panel Report (16 July 2012) WT/DS413/R, WTO Online Database doc no 12-3729, paras. 7.712, 7.725.
500.
Accordingly, the test assesses two groups. On the one hand, it compares the number of all foreign services and service suppliers that receive beneficial treatment to the number of all their domestic counterparts. On the other hand, it compares the number of all foreign services and service suppliers that do not receive beneficial treatment to the number of all their domestic counterparts. See e.g. EC—Bananas III (US), Panel Report (n. 438), paras. 7.334–7.335. See also on less favourable treatment under the MFN obligation in Art II(1) GATS Canada—Autos, Appellate Body Report (n. 432), para. 174, criticizing the panel for not conducting such asymmetric impact test.
501.
Otherwise, the test for finding a modification of the conditions of competition would constitute a diagonal impact test or non-restriction test. Such test finds a measure discriminatory if it has a less favourable impact on one or a few transactions of the protected comparison group. See Ehring (2002), pp. 924–927; Diebold (2010), pp. 41–42.
502.
Ehring (2002), p. 961.
503.
For a detailed discussion of this case see already Sect. 3.1.4.2.1.
504.
EU—Energy Package (n. 435), para. 7.1128.
505.
See Sect. 4.3.3.2.
506.
Given this clear de jure discrimination, a further discussion of possible de facto discrimination of investors from certain countries, such as China, Iran, and Russia, is omitted.
507.
For details on the nature and requirements of Art XIV GATS, see Sect. 4.3.7.
508.
See e.g. the respective provisions Art 3(2)–(3), (5) Screening Regulation on administration and judicial review of decisions.
509.
The only success of the mandate for the Council for Trade in Services so far is the adoption of Council for Trade in Services, ‘Disciplines on Domestic Regulation in the Accountancy Sector’ (Decision by the Council) S/L/64 (‘Disciplines on Domestic Regulation in Accountancy Sector’). Large scale, multilateral negotiations within the framework of Art VI(4) GATS came to a halt in 2017 when a Joint initiative of 59 WTO members, including China, the EU and its Member States, as well as Russia, chose to move forward on a plurilateral level (Ministerial Conference, ‘Disciplines on Domestic Regulation’ (Communication from certain WTO members) WT/MIN(17)/7/Rev.2, WT/GC/190/Rev.2. This decision came after WTO members disagreed on concluding multilateral negotiations that they relaunched within the Working Party on Domestic Regulation. Negotiation development and hurdles are well described by Working Party on Domestic Regulation, ‘Disciplines on Domestic Regulation pursuant to GATS Article VI:4’ (Chairman’s Progress Report) S/WPDR/W/45, replicated in Council for Trade in Services, ‘Negotiations on Trade in Services’ (Report by the Chairman to the Trade Negotiations Committee) TN/S/36. See also Gari (2020), pp. 67–69. Now, the Joint Initiative is developing procedural rules for domestic regulation, such as timely, transparent, and objective administration. The initiative excludes substantial aspects e.g. substantial definitions (except of ‘authorization’) or requirements for a general ‘necessity test’. The WTO members committed to inscribe the negotiation results in their Additional commitments pursuant to Art XVIII GATS on an MFN basis (see WTO members Albania and others, ‘Joint Statement on Services Domestic Regulation’ WT/L/1059). The access to the respective Reference Draft Paper (INF/SDR/W/1/Rev.1, dated 12 December 2019) is restricted.
510.
Pauwelyn (2005), p. 149.
511.
Cossy (2008), pp. 351–352; Krajewski (2008), Art VI, para. 2.
512.
Muller (2017), p. 464.
513.
The following assessment focuses on the EU commitments as included in the EU Schedule, excluding Bulgaria, Croatia, and Romania, which maintain their own schedules, see n. 430.
514.
For a detailed discussion of the scope of the GATS, see Sect. 4.3.3.3.1.
515.
The following will refer to M&A FDI generally. Of course, M&A FDI only falls in the GATS’s scope if it constitutes a commercial presence, and thus gives the investor controlling influence on the FDI target. See Sect. 4.3.3.3.2.
516.
In China—Electronic Payment Services (n. 499), para. 7.55, the US used the notion ‘integrated services’ to describe Electronic payment services (‘EPS’) as one service integrating several other services that are covered by other sectors in the Sectoral Classification List. As such, according to the US, EPS should only fall under Subsector 7.B.d of the Sectoral Classification List (‘All payment and money transmission services’). Entries in Subsectors like 7.B.k and l of the Sectoral Classification List would thus be irrelevant (7.B.k: ‘Advisory and other auxiliary financial services’; 7.B.l: ‘Provision and transfer of financial information and financial data processing and related software by providers of other financial services’).
517.
For the elements of ‘core’ and ‘ancillary’ services, see e.g. China—Publications and Audiovisual Products, Panel Report (n. 487), paras. 7.1195, 7.1201.
518.
See Chap. 3, n. 40.
519.
In the EU Schedule in the sector of Data base services (844 CPC), Subsector 1.B. (d) also includes the maintenance and repair of data, at least for the purpose of data bases.
520.
See similar argument of the US based on the Understanding on Financial Services, para. 8, in China—Electronic Payment Services (n. 499), para. 7.532.
521.
See Sect. 3.1.2.1. This is of course different if WTO members explicitly refer to the Sectoral Classification List or the CPC, see e.g. EU Schedule, Sector 3 on Construction and related engineering services.
522.
See Chap. 3, n. 14.
523.
EU Schedule, Subsector 11.A. (f): ‘Supporting services for maritime transport’ (similar in nearly all other subsectors) as an independent listing of an ancillary service to maritime transport. Moreover, Subsector 11.H of the EU Schedule defines a second type of ancillary services: ‘Services auxiliary to all modes of transport: cargo-handling, storage and warehouse services, freight transport agency services, other’. This combination of two kinds of ancillary services is remarkable. The only possible interpretation is that transport specific ancillary services go under Subsector 11.H, whereas transport unspecific services that also support the core transport service go under Subsector 11.A. (f).
524.
The EU Schedule by referring to 511 of CPC lists ‘Pre-erection work at construction sites’ as independent subsector. At the same time, by referring to 512 and 513 CPC it lists ‘General construction work for buildings’ and ‘General construction work for civil engineering’. The commitments of some countries are split between these related sectors (see e.g. Finland, Latvia, and Slovenia). Though understood as a separate subsector, one could refer to the pre-erection services as an ancillary or supporting service to the general construction services.
525.
For the majority of Member States the EU refers to the sector definitions in Art 5(a) of the Annex on Financial Services which are very similar to the sectors in the Sectoral Classification List. Several subsectors include services that may as well be scheduled as independent services. E.g. para. 5(a)(xv) describes ‘Provision and transfer of financial information, and financial data processing and related software by suppliers of other financial services’ and thus carves out services that would otherwise be included in Computer business services (Subsector 1.B. (a)–(c) of the EU Schedule). A similar carve out is undertaken for auxiliary services in general in para. 5(a)(xvi) (‘Advisory, intermediation and other auxiliary financial services on all the activities listed in subparagraphs (v) through (xv)’).
526.
US—Gambling, Appellate Body Report (n. 469), para. 180; EU—Energy Package (n. 435), para. 7.325.
527.
US—Gambling, Appellate Body Report (n. 469), para. 180.
528.
These other sectors were Subsectors 7.B. (k) and (l) of the Sectoral Classification List. See China—Electronic Payment Services (n. 499), para. 7.528: ‘In the United States’ view, these “aspects” include such elements as the provision of the underlying physical network and wiring; fraud protection; authorization routing, authorization decision solutions, global clearing management, exception handling solutions, automated calculation of the net financial position of a sender/receiver of financial transactions based on the desired currency and settlement service option selected by each party; and, the creation and execution of the transfer order for each financial institution participating in the value day payment activity.’
529.
ibid., para. 7.529. In a similar vein, China—Publications and Audiovisual Products, Panel Report (n. 487), paras. 7.1195, 7.1201.
530.
See China—Electronic Payment Services (n. 499), para. 7.517.
531.
Scheduling Guidelines, para. 35: ‘Where a service transaction requires in practical terms the use of more than one mode of supply, coverage of the transaction is only ensured when there are commitments in each relevant mode of supply.’
532.
Scheduling Guidelines, para. 25.
533.
Following this rationale, the foreign investor could also agree to dismantle the uncovered sectors from her FDI to rely on the EU’s specific commitments for the rest of the FDI. Such dismantlement could also be requested during the screening procedure as a mitigation measure; for the procedure pursuant to FDI Screening mechanisms see Sect. 2.4.3.
534.
See the failed acquisition of shares in the transmission network operator 50 Hertz by the Chinese SOE State Grid Corporation of China, Heide (2018).
535.
In the realm of investment and electricity services, the Energy Charter Treaty is another important source of International economic law. However, the treaty does not cover market access and is thus less relevant to the thesis submitted in this book, cf Sect. 4.3.1.1.
536.
This is the opinion of most WTO members, see Background Note on Energy Services 2010 (n. 454), para. 32, n. 36. See also electricity as a good in 171 CPC as well as all goods listed in Annex I to the CPC (‘Energy Related Products’), such as the input goods coal (110 CPC) and uranium (130 CPC). The European Energy Charter and EU law also categorize electricity as a good, see Cottier et al. (2011), p. 215. These authors also point out that goods and services are unsuitable terms to define energy, and thus support a distinct definition of energy sectors, Cottier et al. (2011), pp. 220, 222–223.
537.
For this understanding of the definition of trade in services, see n. 454.
538.
Yanovich (2011), p. 32.
539.
Subsector 11.G of the EU Schedule and Sectoral Classification List; 7131 CPC. The CPC, to which only Lithuania refers, defines this sector as ‘Transportation via pipeline of crude or refined petroleum and petroleum products and of natural gas.’ The definition of this subsector was dealt with in EU—Energy Package (n. 435), paras. 7.292–7.238, regarding the schedule of Croatia, Hungary, and Lithuania. It was found to ‘encompass[es] the transportation or transmission of natural gas through transmission pipelines’, but to exclude supply or supply services, and LNG services.
540.
Subsector 1.F. (j) of the EU Schedule and Sectoral Classification List, 887 CPC.
541.
In the wider energy sector, the EU Schedule and Sectoral Classification List also list ‘Services incidental to mining’ (883, 5115 CPC).
542.
In the here followed order: Subsectors 3.A.–E., 4.B.–C., 11.H. (b) of the Sectoral Classification List.
543.
Background Note on Energy Services 2010 (n. 454), para. 28. The EU defines transmission as ‘the transport of electricity on the extra high-voltage and high-voltage interconnected system with a view to its delivery to final customers or to distributors, but does not include supply’ (Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC [2009] OJ L 211/55, art 2(3); and, replacing it as of 31 December 2020, Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU [2019] OJ L 158/125, art 2(34)). Distribution is defined as ‘the transport of electricity on high-voltage, medium-voltage and low-voltage distribution systems with a view to its delivery to customers, but does not include supply’ (Directive 2009/72/EC (n. 543), art 2(5); Directive (EU) 2019/944 (n. 543), art 2(28)).
544.
Council for Trade in Services, ‘Energy Services’ (Background Note by the Secretariat) S/C/W/52, para. 8 (emphasis added).
545.
Emphasis added.
546.
See Chap. 3, n. 40, 41.
547.
Latvia, Hungary, Lithuania, and Slovenia. Insofar, 887 CPC even constitutes a contextual interpretative means.
548.
Only Latvia fully committed to NT for Energy distribution services in Mode three trade, while Lithuania limited its commitment to the gas sector, both referring to the 887 CPC definition. Hungary and Slovenia only committed to NT in Mode three trade for consultancy services relating to this sector.
549.
WTO, ‘World Trade Report 2018: The Future of World Trade: How digital technologies are transforming global commerce’ (Geneva, 2018) <https://www.wto.org/english/res_e/publications_e/wtr18_e.htm> accessed 2 February 2022, 30, citing Copeland (2021).
550.
Irion and Williams (2019), p. 19. This form of AI is called ‘Applied AI’, in contrast to ‘Strong AI’ and cognitive simulation, both of which are less relevant, see Copeland (2021).
551.
A functional approach was e.g. also supported by the EC during the e-commerce negotiations at the WTO, Council for Trade in Services, ‘Classification in the Telecom Sector under the WTO-GATS Framework’ (Communication from the EC) S/CSC/W/44. In para. 1 the EC state: ‘Rather, this Communication is based on the premise that telecommunications services do not cover economic activities or services which require telecommunications services for their transport or delivery and the supply of which is subject to specific commitments undertaken in other relevant sectors.’ (emphasis added). Indeed, the context of the distinction from the telecommunications sector and AI is evidently different, since telecommunications activities are recognized as services, whereas AI as such is only a technology.
552.
Copeland (2021).
553.
Irion and Williams (2019), p. 24.
554.
Irion and Williams (2019), p. 19.
555.
Irion and Williams (2019), p. 19.
556.
Art 5(a)(xv) of the Annex on Financial Services.
557.
Subsector 1.A. (h) of the EU Schedule and Sectoral Classification List.
558.
Subsector 1.B. (c) of the EU Schedule and the Sectoral Classification List.
559.
Irion and Williams (2019), p. 19, Subsector 1.F. (a) of the EU Schedule and the Sectoral Classification List.
560.
Pauletto (2008), p. 531; Irion and Williams (2019), p. 19. This reading is supported by the Appellate Body decisions US—Gambling, Appellate Body Report (n. 469), paras. 198–201, 208; China—Publications and Audiovisual Products (n. 409), paras. 363–365, 368–370, where the services at issue were classified according to the service provided, not their method of supply: electronic and internet.
561.
Closely related are the recently relaunched talks on trade-related aspects of e-commerce by a group of WTO members; see WTO members Albania and others, ‘Joint Statement on Electronic Commerce’ WT/L/1056. The group includes inter alia China and Russia, but not India.
562.
On the sui generis legal status of the Understanding on Financial services, see von Bogdandy and Windsor (2008), paras. 1–3.
563.
Cyprus, Estonia, Malta, Latvia, Lithuania, Poland, and Slovenia. Bulgaria, Croatia, and Romania maintain their own schedules, see n. 430.
564.
Hungary horizontally scheduled important exceptions on the transfer of information, especially personal data (EU Schedule on Financial services, paras. 8–12).
565.
Only France scheduled that exception in the NT column: ‘In addition to French credit institutions, issues denominated in French francs may be lead managed only by French subsidiaries (under French law) of non-French banks which are authorised, based on sufficient means and commitments in Paris of the candidate French subsidiary of a non-French bank.’ The following other Member States scheduled exceptions to Market access, which may also apply to NT pursuant to Art XX(2) GATS. E.g. Czech Republic provides: ‘Banking services may be provided only by Czech established banks or branches of foreign banks having a licence granted by the Czech National Bank in agreement with the Ministry of Finance. The granting of the licence is based on the consideration of criteria which are applied consistently with GATS. Mortgage loan services may be provided only by Czech established banks.’ The Slovakian exception is similarly drafted. Portugal scheduled a modified economic-needs test based on a contribution to ‘increase the national banking system’s efficiency’ and ‘to produce significant effects on the internationalization of the Portuguese economy’.
566.
Malta and Slovakia. The latter through a license requirement under the Market access column which may also serve as a reservation under NT (Art XX(2) GATS).
567.
‘For mode 3 and with regard to on-line information and/or data processing (including transaction processing): license is required.’
568.
According to this approach, it may be effective from a policy perspective to leave unclear classification issues open. This may leave more room to WTO members to invoke uncommitted services sectors in order to prove that they are not bound by NT for a specific FDI.
569.
See fourth cornerstone of FDI Screening mechanisms as defined in Sect. 2.4.3.
570.
Emphasis added.
571.
See Sect. 4.3.3.
572.
EC—Bananas III, Appellate Body Report (n. 437), para. 234; Adlung (2016), p. 67.
573.
See Sects. 4.3.4.2.1 and 4.3.4.2.2. Despite their different context, the NT and MFN provisions’ basic notions likeness and less favourable treatment are to be interpreted similarly. Arts II(1) and XVII GATS ‘share the essential nature of anti-discrimination provisions’ (Argentina—Financial Services, Appellate Body Report (n. 438), para. 6.105). In Argentina—Financial Services, the Appellate Body also emphasizes the parallel understanding by assessing likeness and less favourable treatment pursuant to Arts II(1) and XVII GATS in the same paragraph (Argentina—Financial Services, Appellate Body Report (n. 438), paras. 6.18ff, 6.101ff). See also Zdouc (2004), p. 416.
574.
The EU-China CAI will, according to the Commission, not exceed the EU’s WTO commitments. A different treatment of Chinese investors is thus unlikely.
575.
In EU—Energy Package, the panel held that a measure constitutes less favourable treatment if it subjects only one group of like investors to a security of energy assessment (EU—Energy Package (n. 435), para. 7.1096).
576.
See also Sect. 2.4.3.
577.
This consideration does not apply where the investor has the right to exploit the asset’s intellectual property rights, e.g. in case of a complete acquisition or an exploitation agreement.
578.
For the competition concern, the rationale behind, and its shortcomings, see Sect. 2.1.1.
579.
Cf the harmful investor concern Sect. 2.1.3.
580.
The EU has adopted a similar approach in its bilateral trade and investment agreements with countries that have a strong public sector. See e.g. the Art 3bis of Section II EU-China CAI and Chapters 10 and 11 of the EU-Vietnam FTA, and their brief analysis in Sect. 4.3.2.1.3 ‘EU-China CAI’.
581.
The likeness criterion also comprises two more layers: the likeness of services across the supply modes pursuant to Art I(2) GATS as well as the relation between the likeness of services and the likeness of service suppliers. However, as FDI Screening mechanisms focus on the investors and thus service suppliers only, and apply across sectors, the following will concentrate on the likeness of service suppliers.
582.
See Sect. 4.3.3.3.
583.
These criteria stem from Working Party on Border Tax Adjustment, ‘GATT Working Party Report’ BISD 18S/97, para. 18. The criteria have been reiterated in decisions ever since, see e.g. Japan—Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages, GATT Panel Report (10 November 1987) BISD 34S/83, para. 5.6, on Art III(2) GATT; European Communities—Measures Affecting Asbestos and Asbestos-Containing Products, Appellate Body Report (12 March 2001) WT/DS135/AB/R, WTO Online Database doc no 01-1157, para. 101, on Art III(4) GATT, adding tariff classification; and, finally, transposing it to Arts II(1) and XVII(1) GATS, subject to qualifications, Argentina—Financial Services, Appellate Body Report (n. 438), paras. 6.30–6.31.
584.
On both see Chap. 3, n. 40.
585.
Cossy (2008), p. 334, giving the example of cardiologists and dermatologists being in the same subsector of specialized medical services. See also Wolfrum (2008), para. 37; Delimatsis and Hoekman (2018), p. 285. While EC—Bananas III (US), Panel Report (n. 438), para. 7.289, still relied on the CPC to some extent, Argentina—Financial Services, Appellate Body Report (n. 438), para. 6.32, simply lists the CPC as one possible criterion without further assessment. Mattoo (1997), p. 128, rightly argues that an indication for the ‘unlikeness’ of services is established if the services at issue are not in the same CPC classification.
586.
On Art 2.1 TBT, United States—Measures Affecting the Production and Sale of Clove Cigarettes, Appellate Body Report (4 April 2012) WT/DS406/AB/R, WTO Online Database doc no 12-1741, para. 117, held that regulatory concerns may effect the criteria of physical characteristics and consumer preferences.
587.
Argentina—Financial Services, Appellate Body Report (n. 438), para. 6.34; Argentina—Financial Services, Panel Report (n. 444), para. 7.163. Apparently with the same conclusion, yet without undertaking an analysis of the competitive relationship EU—Energy Package (n. 435), paras. 7.419, 7.421. The Appellate Body has rejected a non-economic understanding of likeness that would apply the above-listed four criteria regardless of them affecting the competitive relationship of services and service suppliers (see China—Electronic Payment Services (n. 499), para. 7.700; Argentina—Financial Services, Appellate Body Report (n. 438), para. 6.22). At the same time, in Argentina—Financial Services the Appellate Body stated that it was ‘not called upon to pronounce in this appeal on the relevance and weight of specific criteria for determining whether service suppliers and the services provided are “like”’ (Argentina—Financial Services, Appellate Body Report (n. 438), para. 6.33). Given its prior emphasis of the competitive relationship, this Appellate Body statement could only have in mind the definition of the degree of a competitive relationship that is necessary to establish likeness. Non-economic criteria could thus impinge on a supposedly economic test. This gives the adjudicating bodies additional flexibility to determine the results of a market-based ‘likeness’ test (see also Argentina—Financial Services, Appellate Body Report (n. 438), para. 6.26). The remarks on the characteristics of services and service suppliers in Argentina—Financial Services, Appellate Body Report (n. 438), para. 6.39, must be read against this background. Nevertheless, Grossman et al. (2013), pp. 307–312, argue for the concept of ‘policy likeness’.
588.
The adjudicating bodies also dismissed a subjective approach that takes the possibly legitimate regulatory intent behind the measure at issue into account (see EC—Bananas III, Appellate Body Report (n. 437), para. 241).
589.
See also the definition of (potential) trade in services, in Sect. 4.3.3.3.3.
590.
See also Sect. 4.3.5.1, in particular n. 575.
591.
Another long-time debate is whether the non-discrimination test should instead assess whether the intention behind the measure at issue was discriminatory. The most discussed subjective approach is the ‘aims-and-effects test’, which the Appellate Body rightly rejected for Arts II(1) and XVII(1) GATS in EC—Bananas III, Appellate Body Report (n. 437), para. 241; and for the non-discrimination obligation in the GATT 1994 in European Communities—Measures Prohibiting the Importation and Marketing of Seal Products, Appellate Body Report (22 May 2014) WT/DS400/AB/R and WT/DS401/AB/R, WTO Online Database doc no 14-3051, paras. 5.90, 5.93, 5.117 (on Arts I(1) and III(4) GATT 1994). The GATS does not provide the means to determine whether the regulatory intent behind a measure is legitimate or discriminatory. The adjudicating bodies are not called to fill this void, which is highly sensible for WTO members. Some authors nevertheless favour an understanding based on an objectivized regulatory intent (see the discriminatory intent account e.g. Cossy (2008), pp. 344, 348; widely agreeing Pauwelyn (2008), pp. 362–363).
592.
See the harmonization mandate for the Council for Trade in Services in Art VI(4) GATS, which so far only led to the Disciplines on Domestic Regulation in Accountancy Sector (n. 509), and the plurilateral joint initiative following Ministerial Conference, ‘Communication from Certain Members on Domestic Regulation’ (n. 509).
593.
In Arts VI(5)(b) and VII(5) GATS, the GATS itself accepts international standards to be taken into account when assessing domestic regulation and the recognition of another WTO member’s standards or criteria for authorization, licensing, or certification of service suppliers.
594.
For a description of both organizations see Argentina—Financial Services, Panel Report (n. 444), paras. 2.55–2.62.
595.
ibid., paras. 7.509–7.516, 7.665–7.671.
596.
ibid., 7.671.
597.
Argentina—Financial Services, Appellate Body Report (n. 438), paras. 5.2, 29.
598.
See e.g. Pauwelyn (2014), p. 739; Gari (2016), p. 589; Mavroidis and Wolfe (2017), p. 1. De Meester (2008), pp. 646–647, discusses the financial regulation standards developed by the Basel Committee on Banking Supervision as elements of an MFN assessment.
599.
See Art VI(5)(b) GATS and Footnote 3 to the GATS: ‘international bodies whose membership is open to the relevant bodies of at least all Members of the WTO’. Art VII(5) GATS, on the other hand, does not reference Footnote 3, but also references ‘relevant intergovernmental and non-governmental organizations’. Nevertheless, only a common definition of relevant organization for both provisions makes sense. This is even more so, since Annex 1 to the TBT, para. 4, also uses the term ‘open to the relevant bodies of at least all Members’. On the interpretation of this term in the realm of the TBT, see United States—Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products, Appellate Body Report (16 May 2012) WT/DS381/AB/R, WTO Online Database doc no 12-2620, paras. 364, 384–386. Further criteria for international standards that may also apply in the GATS realm are listed in Committee on Technical Barriers to Trade, ‘Decision on the Committee on Principles for the Development of International Standards, Guides and Recommendations with relation to Articles 2, 5 and Annex 3 of the Agreement’ (Annex 4 to Second Triennal Review of the Operation and Implementation the Agreement on Technical Barriers to Trade) G/TBT/9.
600.
International Organization for Standardization, ‘ISO Statutes’ (Geneva, 2018) <https://www.iso.org/publication/PUB100322.html> accessed 2 February 2022, arts 3.1 and 3.2; International Electrotechnical Commission, ‘IEC Statutes and Rules of Procedure’ (as amended, Geneva, 2001) <https://www.iec.ch/members_experts/refdocs/> accessed 2 February 2022, art 4.
601.
See e.g. Annex 1 to the TBT, which defines certain terms by reference to International Organization for Standardization and International Electrotechnical Commission, ‘ISO/IEC Guide 2:1991: General Terms and Their Definitions concerning Standardization and Related Activities’ (Geneva, 1991) <https://www.iso.org/standard/19713.html> accessed 2 February 2022. ISO/IEC Guide 2:1991 has now been updated to International Organization for Standardization and International Electrotechnical Commission, ‘ISO/IEC Guide 2:2004: Standardization and Related Activities—General Vocabulary’ (as amended, Geneva, 2004) <https://www.iso.org/standard/39976.html> accessed 2 February 2022.
602.
According to Huawei’s own statement, the British Standards Institution certified Huawei to respect the ISO 27701 standard (Huawei press release, 30 December 2019, <https://www.huawei.com/en/press-events/news/2019/12/huawei-ma5800-code-evaluation-build-engineering-assessment> accessed 2 February 2022. For the data protection concerns regarding Huawei, see Financial Times (2019) (paywall).
603.
For the definition of Trade-defining services see Sect. 4.3.3.3.1.
604.
Canada—Autos, Panel Report (n. 495), para. 10.271.
605.
ibid., paras. 10.265, 10.271. See also on the parallel GATT provision, Art XXIV(5) GATT 1994, Peru—Additional Duty on Imports of Certain Agricultural Products, Appellate Body Report (20 July 2015) WT/DS457/AB/R, WTO Online Database doc no 15-3716, para. 5.116. Here, the Appellate Body held: ‘In our view, the references in paragraph 4 to facilitating trade and closer integration are not consistent with an interpretation of Article XXIV as a broad defence for measures in FTAs that roll back on Members’ rights and obligations under the WTO covered agreements.’ This may be read as weighing against Art XXIV(5) GATT 1994, and thus Art V(1) GATS, as a general exception to the MFN obligation. However, in Peru—Agricultural Products, Peru was found to have violated its obligations to reduce customs pursuant to Art II(b) GATT 1994, not the MFN obligation. Nevertheless, If WTO law wants to give WTO members the right to conclude—and respect—additional RTAs, it must provide an exception to the MFN obligation. Otherwise, this aim would be undermined.
606.
This requirement was also briefly discussed in Peru—Agricultural Products (n. 605), para. 5.112. Under this requirement, Adlung (2020), pp. 493, 498, addresses GATS-minus RTAs that stipulate obligations that in scope are inferior to the respective GATS obligations, for example excluding the awarding of subsidies from the NT obligation. However, this issue is better addressed under Art V(1)(b) GATS, namely whether eliminating NT discrimination between the RTA parties with the exception of subsidies constitutes the elimination of substantially all NT discrimination.
607.
Cottier and Molinuevo (2008), para. 11.
608.
Cottier and Molinuevo (2008), para. 19.
609.
Cottier and Molinuevo (2008), para. 24.
610.
Turkey—Restrictions on Imports of Textile and Clothing Products, Appellate Body Report (22 October 1999) WT/DS34/AB/R, WTO Online Database doc no 99-4546, para. 48 (emphasis in the original).
611.
ibid.
612.
Arts 8.2.2(a), 9.2.2(e)), 8.3.3, 9.2.2(b) and (c) CETA. Canada and the EU also excluded all activities carried out in the exercise of governmental authority (Arts 8.2.2(b), 9.2.2(a) CETA).
613.
Arts 8.3(a), (d)–(e), 8.9(a) EU-Vietnam FTA. For the investment chapter, the parties also excluded services performed in the exercise of governmental authority (Art 8.3.2(f) EU-Vietnam FTA).
614.
This book does not submit a full analysis of all sector commitments in CETA and the EU-Vietnam FTA. It may be expected that the parties to the EU FTAs commit to NT vis-à-vis the other FTA party at least in those sectors in which they also committed to NT under the GATS.
615.
The EU-China CAI, on the other hand, is limited to investment, and does thus only cover Mode three trade (commercial presence). Accordingly, it would not fulfil the requirements of Art V(1) GATS.
616.
Also emphasized by Adlung (2020), p. 494. See also Canada—Autos, Panel Report (n. 495), para. 10.270.
617.
Paraphrased in accordance with Arts 8.6(1) and (2), 9.3, 10.6.2(a) CETA for establishment, cross-border trade, and temporary personal presence; Art 8.5 EU-Vietnam FTA for establishment.
618.
See Arts 8.15.5(b) and 9.2.2(g) CETA.
619.
With a detailed discussion of the possible discrepancy between the notions of NT discrimination, see Adlung (2020), pp. 503–506.
620.
See also Krajewski (2003), p. 158.
621.
US—Gambling, Appellate Body Report (n. 469), para. 292.
622.
Krajewski (2003), p. 161.
623.
Panama stated that the legal standards for Art XIV(c) GATS were ‘well-developed’, and therefore only appealed the standards’ application; Argentina—Financial Services, Appellate Body Report (n. 438), paras. 6.157, 6.200, 6.221.
624.
US—Gambling, Appellate Body Report (n. 469), para. 291; Argentina—Financial Services, Panel Report (n. 444), para. 7.590. See also India—Solar Cells, Appellate Body Report (n. 416), paras. 5.110–5.111, which cites Argentina—Financial Services, Appellate Body Report (n. 438), on Art XIV(c) GATS to interpret Art XX(d) GATT 1994.
625.
Argentina—Financial Services, Appellate Body Report (n. 438), para. 6.168.
626.
Argentina—Financial Services, Panel Report (n. 444), para. 7.593.
627.
Krajewski (2003), pp. 158–159.
628.
India—Solar Cells, Appellate Body Report (n. 416), para. 5.111.
629.
Argentina—Financial Services, Panel Report (n. 444), para. 7.609.
630.
US—Gambling, Appellate Body Report (n. 469), para. 138; Dominican Republic—Measures Affecting the Importation and Internal Sale of Cigarettes, Appellate Body Report (25 April 2005) WT/DS302/AB/R, WTO Online Database doc no 05-1669, para. 111 (on Art XX(d) GATT 1994); Argentina—Financial Services, Panel Report (n. 444), paras. 7.620, 7.625. See also Mishra (2020), p. 352.
631.
The requirement of ‘designed to’ follows from the literal meaning of ‘measures necessary to secure compliance with’, see Mexico—Tax Measures on Soft Drinks and Other Beverages, Appellate Body Report (6 March 2006) WT/DS308/AB/R, WTO Online Database doc no 06-0914, para. 72.
632.
Colombia—Measures Relating to the Importation of Textiles, Apparel and Footwear, Appellate Body Report (7 June 2016) WT/DS461/AB/R, WTO Online Database doc no 16-3060, paras. 5.134–5.135.
633.
Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, in the corrected version [2004] OJ L 195/16; Directive (EU) 2015/2436 of the European Parliament and of the Council of 16 December 2015 to approximate the laws of the Member States relating to trade marks [2015] OJ L 336/1; Directive (EU) 2019/790 of the European Parliament and of the Council of 17 April 2019 on copyright and related rights in the Digital Single Market and amending Directives 96/9/EC and 2001/29/EC [2019] OJ L 130/92.
634.
Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (GDPR) [2016] OJ L 119/1. Mishra (2020), p. 352, raises doubts whether the GDPR adequacy rules on third countries’ data protection laws are non-discriminatory, citing Kuner (2019).
635.
For a detailed discussion of this concern see Sect. 2.1.2.
636.
India—Solar Cells, Appellate Body Report (n. 416), para. 5.59 (footnotes omitted, on Art XX(d) GATT 1994), citing Korea—Measures Affecting Imports of Fresh, Chilled and Frozen Beef, Appellate Body Report (11 December 2000) WT/DS161/AB/R and WT/DS169/AB/R, WTO Online Database doc no 00-5347, paras. 162–164, 166; Colombia—Textiles (n. 632), paras. 5.71–5.74; EC—Seal Products, Appellate Body Report (n. 591), para. 5.169. These are also cited by Argentina—Financial Services, Panel Report (n. 444), paras. 7.659–7.660.
637.
In Argentina—Financial Services, Appellate Body Report (n. 438), para. 6.221, the Appellate Body cautioned against a too ‘disaggregated and compartmentalized’ assessment of these factors, in particular if multiple measures are at issue. Nevertheless, for identifying factors that may limit the EU’s flexibility to screen FDI, such a compartmentalized approach is indispensable.
638.
In Argentina—Financial Services, Panel Report (n. 444), paras. 7.662–7.682, the panel also relied on decisions and reports of other international fora such as the OECD and the Financial Action Task Force to conclude that protecting the tax collection system and fighting against harmful tax practices is of utmost importance to Argentina.
639.
Mishra (2020), p. 354.
640.
Argentina—Financial Services, Appellate Body Report (n. 438), paras. 6.227, 229; citing Korea—Various Measures on Beef, Appellate Body Report (n. 636), para. 163 (on Art XX(d) GATT 1994). The contribution of the measure must be based on a qualitative or quantitative assessment, instead of simple inferences (Argentina—Financial Services, Appellate Body Report (n. 438), para. 6.234).
641.
Cottier et al. (2008), para. 40, who cite Korea—Measures Affecting Imports of Fresh, Chilled and Frozen Beef, Panel Report (31 July 2000) WT/DS161/R and T/DS169/R, as modified by Appellate Body Report WT/DS161/AB/R and WT/DS169/AB/R, WTO Online Database doc no 00-3025, para. 658. This reference, however, does not support the conclusion of ‘partial compliance’. The panel only argued that it was enough if the measure at issue was in part designed to secure compliance, but, in other parts, pursued different objectives. Nevertheless, Argentina—Financial Services, Appellate Body Report (n. 438), para. 6.234, also emphasizes the term contribution.
642.
Korea—Various Measures on Beef, Appellate Body Report (n. 636), para. 163.
643.
ibid. (on Art XX(d) GATT 1994); Argentina—Financial Services, Panel Report (n. 444), para. 7.727.
644.
Argentina—Financial Services, Appellate Body Report (n. 438), para. 6.238; citing Brazil—Measures Affecting Imports of Retreaded Tyres, Appellate Body Report (3 December 2007) WT/DS332/AB/R, WTO Online Database doc no 07-5290, para. 150 (on Art XX(d) GATT 1994).
645.
Argentina—Financial Services, Panel Report (n. 444), paras. 7.720–7.723.
646.
ibid., para. 7.719.
647.
ibid., para. 7.688, though on how to determine whether the measure contributes to the compliance objective.
648.
See Sects. 4.3.3.2 and 2.4.3.
649.
See also the assessment of FDI Screening mechanisms modifying the conditions of competition in Sect. 4.3.4.2.2.
650.
See for a similar conclusion on the certification requirement for foreign-controlled natural gas transmission system operators EU—Energy Package (n. 435), paras. 7.1227–7.1228. According to the panel, the trade-restrictiveness of such a measure will ultimately depend on its application.
651.
On Art XIV(a) GATS: US—Gambling, Appellate Body Report (n. 469), para. 308, citing Korea—Various Measures on Beef, Appellate Body Report (n. 636), para. 176 (on Art XX(d) GATT 1994). See also on Art XX GATT 1995: Dominican Republic—Import and Sale of Cigarettes (n. 630), para. 23; Brazil—Retreaded Tires (n. 644), para. 210.
652.
Cottier et al. (2008), para. 41. Often, however, the adjudicating bodies find that the measure at issue does not exclude any risk of non-compliance, but seeks to significantly reduce the risk. This makes it then easier to list alternative measures. See e.g. Korea—Various Measures on Beef, Appellate Body Report (n. 636), para. 178.
653.
Argentina—Financial Services, Panel Report (n. 444), paras. 7.732–7.736.
654.
Korea—Various Measures on Beef, Appellate Body Report (n. 636), paras. 178–180.
655.
ibid., para. 172.
656.
ibid., para. 181.
657.
Similarly, EU—Energy Package (n. 435), paras. 7.1237, 1227, in which the panel found that an EU statute requiring gas transmission operators (‘TSOs’) not to comply with foreign law that undermines the EU’s energy security does not provide the same level of energy security protection than an ex ante screening mechanism of foreign-controlled TSOs that sought to assess the possible effect of foreign government interference on the EU’s energy security.
658.
A disinvestment order is first nearly impossible, since disinvestment is highly complex and requires an alternative investor who acquires the foreign investor’s shares. Second, a disinvestment order may fail to meet its objective because the foreign investor may already have violated IP rights and private information protection before the disinvestment.
659.
See Commission, ‘Proposal for a Regulation of the European Parliament and of the Council on foreign subsidies distorting the internal market’ COM (2021) 223 final, and discussion in Sect. 2.3.2.
660.
ibid.
661.
A definite conclusion depends on the concrete design and operation of the FDI Screening mechanism that cannot be given here.
662.
A third option may be FDI Screening mechanisms based on the unwritten ground of exception of ‘overriding reasons in the public interest’. However, this option has other significant shortcomings, and was thus not further discussed in this book. See n. 329.
663.
The analysis of International economic law was limited to EU FTAs and WTO agreements. For the reasons discussed in Sect. 4.3.1, Member States BITs, EU IPAs, and the OECD Code of Capital Movements are less relevant, and were thus not further analyzed.
664.
This conclusion is based on the negotiated EU-China CAI, published on 22 January 2021, and Commission, ‘Agreement in Principle on EU-China CAI’ (n. 363), p. 2.
665.
Depending on the concrete design and operation of the FDI Screening mechanism, the GATS may to some extent allow differentiation based on IP rights and private information protection.

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Jens Velten

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Velten, J. (2022). Flexibility for FDI Screening on Broader Grounds Than ‘Security or Public Order’. In: Screening Foreign Direct Investment in the EU. European Yearbook of International Economic Law(), vol 26. Springer, Cham. https://doi.org/10.1007/978-3-031-05603-1_4

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DOI: https://doi.org/10.1007/978-3-031-05603-1_4
Published: 20 July 2022
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Online ISBN: 978-3-031-05603-1
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