CYIL vol. 8 (2017)

TOMÁŠ FECÁK CYIL 8 ȍ2017Ȏ IIAs covering also portfolio investments and providing for ISDS will have to be concluded as mixed agreements, i.e. with joint participation of the EU and its Member States. 4 The question is whether the international responsibility for breaches of such agreements should be borne by the Union or by the Member States, or whether there will be some sort of joint responsibility of both. A closely related question is who will be the proper respondent against whom third-country investors can assert their rights in investment treaty arbitration or other applicable dispute settlement procedure. Second, there is a number of conceivable scenarios of breaches of third-country investors’ rights under EU IIAs. The three basic scenarios (including sub-variants) are the following: (1) The rights of an investor will be breached by the conduct of the Union institutions. (2) The rights of a foreign investor will be breached by the actions of a Member State implementing EU law rules. For example, the treatment challenged by an investor may originate from actions of a Member State’s authorities giving effect to EU regulations or decisions of the EU institutions. The alleged breach may also flow from legislative measures of a Member State aimed at implementation of an EU directive. This category is a broad one and may encompass various sub-variants and combinations which may lead to different conclusions about the international responsibility of the Union or the Member State concerned: (a) The act adopted by the Union does not leave the Member State any margin of discretion and can be implemented by the Member State only in a way which violates the investor’s rights under an EU IIA. (b) The act adopted by the Union leaves the Member State a certain margin of discretion as regards the specific way of its implementation. This situation is typical for implementation of directives, though it is not limited to these cases. The Member States may, within the boundaries of their discretion, implement such an act in a way which is generally compliant with EU law but which nevertheless violates the investor’s rights under the Union investment agreement. This may be the case especially where a directive prescribes only a certain minimum of EU-law-based requirements for national legislation, not excluding adoption of more stringent regulation by the Member States. (c) A Member State may implement a Union act, which itself is not problematic from the perspective of protection of foreign investors, in a way which is not compliant with EU law and at the same time violates rights of a foreign investor under an EU IIA. (3) The rights of a foreign investor may be breached by conduct of a Member State which acted (or failed to act) within the boundaries of its own internal competence in an area which is not covered by EU legislation. The possibility of such scenario results from the fact that the external competence of the Union for foreign investment does not mirror the existing rules applicable within the area of the internal market and that traditional IIAs’ investment protections standards (in particular fair and equitable treatment and protection against expropriation) go beyond the regulatory scope of existing internal regulation. Treatment afforded by a Member State to a third-country investor may be perfectly consistent with EU law rules applicable at the internal level, but may violate an investment agreement concluded between the Union and a third country. This fact

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4 Opinion 2/15, EU:C:2017:376, paras. 225- 244 and 285-293.