YSEC Volume III (2022)
Funding of Justice: Access to Effective Justice in Times of Marketisation of Justice and Shrinking Public Budgets
Contents
Funding of justice has significant consequences for the enforcement of rights and impacts directly on access to justice and the right to a fair trial as constitutional rights. For example, if a potential litigant does not have the financial means to bring or defend a claim in court, because the litigant is not eligible for legal aid or cannot use private forms of litigation funding, that litigant is deprived of access to justice. Access to justice in turn essentially impacts on the effective enjoyment of any other constitutional right, since having the actual means to access a court in case of a potential breach strengthens that right.
As public funding is in decline and as market liberalization in the field of justice increases, crucial questions related to the rule of law, access to justice and social and economic development, in the intersection between states, citizens and business are raised. For example, potential questions of conflict of interest and how to ensure independence of the adjudicator, or how to ensure a basic level of equality of access to funding for weaker parties such as consumers, whilst at the same time protecting market freedom and the right to business.
Furthermore, the funding of justice is not an exclusively domestic issue but has increasing importance also for the supranational and international level of markets, actors and regulators. At the EU level this has been evidenced recently by the rules on third-party litigation funding in Directive 2020/1828/EU on representative actions for the protection of the collective interests and the broader study of the European Parliament “Responsible private funding of litigation: European added value assessment” published in 2021.
Funding of justice - the specific theme for this volume - concerns the socio-economic constitutional challenges associated with three broad perspectives on funding: “venue funding”, “party funding” and “law funding”. Funding of the venues of justice concerns funding of a multitude of bodies such as court systems, alternative dispute resolution bodies, or international dispute resolution fora. Funding of the parties to a dispute relates to both legal aid and other public schemes as well as funding products available on private markets, such as litigation insurance, third-party litigation finance and crowd-funding, as well as different forms of assigning or selling claims. Funding of law revolves around intellectual property, availability, and accessibility of laws, court decisions, legal sources, and other law-related data.
Public funding of venues and parties has come under pressure due to the reality of financial austerity measures and the tightening public budgets in many countries across the globe. This has contributed to privatization and marketisation of funding for venues and parties in ever more jurisdictions. Funding of law-related data has also evolved in the private sector entailing that access to such data for the public and even public institutions is now in some jurisdictions in the control of private actors. This redistribution of funding from public to private actors can be beneficial if it increases access but it also elicits new perspectives on constitutional rights; both traditional rights such as access to justice and more nascent rights such as access to legal data.
Chapters
Eva Storskrubb (2022)
Access to justice — as defined here — is linked intrinsically to the different forms of the welfare state and social constitutionalism. However, due to the crisis currently confronting the welfare state, a change is occurring in the role of states and in the cut-off involving many social programmes, including the ones providing legal aid as part of access to justice programmes. This new scenario has led to an increase in the number of private actors playing the role of ‘third party litigation funders’ (TPLF). The main, twofold question I propose to answer in this article is to what extent does the state remain responsible for guaranteeing access to justice, and what exactly are the duties of private actors. For this purpose, I analyse from an argumentative perspective the concept of access to justice as a human right in the European system of human rights, and I suggest that the framework of three degrees of obligation (duty to respect, to protect and to fulfil human rights) should be applied for a better understanding of the topic. In this context, I examine the different soft law instruments that regulate access to justice, and I suggest certain gaps that should be filled in applying the human rights approach.
Maria Carlota Ucin (2022)
Third-party funding advantages funded parties because funded parties already tend to be calculable winners on the merits rather than parties likely to lose on the merits. Thus, parties likely to win on the merits are even more likely to win with third-party funding, but not all winning parties can secure third-party funding. Hence, the overarching question is as follows: if funders pick winners among the winners, what does real access to justice look like in an era of third-party funding? For example, would real access to justice need to involve third-party funders funding indigent or innocent respondents, expensive long-shot claimants, righteous injunctions with no monetary recovery, or unprofitable cases that espouse some worthy yet controversial position?
This chapter uses a thought experiment to identify areas of law and categories of parties where the promise of third-party funding may fall short regarding expanding access to civil justice. After outlining the thorny needles of this problem, this chapter presents a potential solution for funding long-shot winners, expensive winners, respondent winners, nonfinancial winners, and political winners—depending on the facts and circumstances of the disputes.
Victoria Sahani (2022)
What is the right price for adjudication? The influence of prices in determining access to justice makes this question all the more problematic, as the free interaction between supply and demand for judicial services has notoriously a limited role in this area due to the pervasive role of state-determined tariffs. Fixing prices at too low a level is an easy way to satisfy the need for justice, but it may come at the cost of overlitigation, which squanders resources. Fixing prices at too high a level is an easy way to make justice quicker, but it may neglect the costs of reducing access to justice. Using the EU Justice Scoreboard—a unique policy instrument to measure the performance of EU national justice systems—the paper explores how the European Commission understands the role of adjudication costs. In so doing, it highlights how this tool addresses access to justice from an economic point of view. The paper’s findings show that the Scoreboard’s reporting on costs has evolved gradually. It shifted away from generic considerations on government expenditure (which involve a supply-side analysis) to adopt qualitative evaluations on the allocation of resources for litigants (which involve a demand-side analysis). Based on this interpretation, the paper critically assesses the value judgements underpinning the EU Justice Scoreboard and submits some observations on its nature and function as a policy tool.
Adriani Dori (2022)
This paper presents a close reading of the European Parliamentary Research Service’s (EPRS), report ‘Responsible private funding of litigation’, which was prepared to assist the Members of the European Parliament with an objective and authoritative analysis of litigation funding and its effects in order to consider implementing policies on a yet unregulated market. The report raises significant concerns with respect to, inter alia, the alleged lack of a clear and comprehensive taxonomy for the litigation funding practice, as well as the perceived risk for frivolous claims and conflicts of interest whereby funders allegedly corrupt justice by influencing funded parties in settlement situations. However, through careful analysis of the report, it is shown in this paper that several critical conclusions on the purported drawbacks of litigation funding set forth in the report are not founded in the research presented in the report itself but rather contradict its actual findings.
Johan Skog (2022)
Like many other countries, in the last years Belgium has seen a rise in environmental and climate litigation. At first sight, one could argue that this proves that claimants in environmental and climate cases manage to find their way to court. Following some legislative amendments, the legal standing of litigants acting in the collective interest in Belgium seems to have improved. However, this constitutes only one part of the story, and a closer look at some high-profile environmental and climate cases in Belgium suggests that litigants acting in the collective interest often rely on crowdfunding or other forms of private funding to be able to pay the fees. This chapter investigates whether the legal framework currently in force in Belgium ensures a satisfactory level of equality when it comes to access to funding for parties acting for the protection of the environment. To establish what a “satisfactory” level of access to justice could be, we rely on the multi-layered understanding of this right as established by the relevant supranational and international legislation and case-law, as well as by the Belgian Constitution as interpreted by the Belgian constitutional court. Through a small selection of cases from Wallonia, Brussels and Flanders and semi-structured interviews with claimants acting for the protection of the environment, we offer an overview of the funding instruments and modalities used in practice to bring environmental protection cases before Belgian courts. Our contribution is meant as an exploratory study into the topic of funding for these types of cases. In doing so, we point out how the legal framework on legal aid (public funding) currently in place in Belgium proves unable to guarantee access to justice in environmental matters, resulting in litigants looking for other, often private, sources.
Florence Van Durme & Alberto Nicotina (2022)
Climate change impacts fundamental rights with increasing and irreversible effects. Yet, it remains largely unresolved by political action, and tipping points in the climate system are a genuine concern. Citizens are therefore seeking relief in court. However, traditional standing, justiciability, and evidence rules hinder access to climate justice, making it uncertain and potentially expensive for plaintiffs. Many cases have, in fact, been rejected based on procedural grounds. In addition, procedural rules appear to mismatch the fragmented nature of climate change harm. This Chapter argues that the 2020 Model Statute for Proceedings Challenging Government Failure to Act on Climate Change, drafted by the International Bar Association, might offer viable solutions for procedural law reform to decrease the hurdles identified for climate justice.
Gianni Ghinelli (2022)
One of the greatest challenges facing courts throughout the world is undoubtedly the growing number of litigants in person; when confronted with the complexity of modern-day legal proceeding, unrepresented litigants are (in)famous for creating havoc. This problem can, however, be viewed from two different perspectives: Some commentators perceive individuals’ insufficient litigation skills as the key problem, to be solved by compelling litigants to rely on qualified counsel. Others argue that the level of complexity inherent in court litigation is the real problem, to be solved by simplifying the procedure. Unfortunately, both of these “solutions” create their own problems.
If a procedural system presumes that individuals are represented by counsel, then counsel fees must be alleviated to ensure that anyone can have “access to a lawyer” (and thereby “effective access to court”). Relieving parties of their lawyers’ fees will, however, only shift costs from one subject to another. Ultimately, someone must pay. This explains why legislators have instead tried to “simplify the procedure” (thereby reducing the “need for counsel”). However, if individuals are to proceed without counsel, then the court must usually “help” the unrepresented party to conduct his/her case. This is not uncontroversial since it may contradict basic principles of procedural law, by blurring the line between the parties and the court.
In this chapter, the Swedish administrative procedure is used as an example to discuss the problems outlined above: Is simplification of procedure a realistic alternative to lawyer-conducted litigation? Drawing on empirical data regarding litigation outcomes for pro se litigants, this question is answered in the negative.
Sebastian Wejedal (2022)
The chapter discusses possible interactions between free speech and antitrust. Antitrust law is typically associated with economic phenomena and competitive market conditions. However, claims have been made during the ongoing debate over the role of Big Tech that antitrust enforcement should also be concerned with the exercise of free speech. The chapter shows that while such claims can be seen as controversial, they are not fundamentally ill-conceived, as antitrust law used to interact with free speech and used to be more focused on safeguarding political values, not merely efficiency. Since the free speech narrative is more present in the United States, the chapter covers the US perspective, but it ultimately aims at making a link between free speech and EU competition law, drawing a framework of possible interactions. The main conclusion of the chapter is that while more interaction between free speech and antitrust had been seen in the past in the United States, EU competition law can be in fact more flexible when it comes to accommodating the interests of free speech.
The chapter tackles the problem of the funding of civil justice determined by contractual clauses. All around the globe, parties to a contract in general have been negotiating about procedure, something once envisaged only for arbitration, but now a growing trend also for court litigation. “Contract procedure”, “procedural contracts” or “procedural agreements” have been frequently used also as a tool to define the costs distribution between the parties, shifting or modifying statutory provisions, assigning or selling claims, and inserting third parties into the equation of the conflict by way of appointing them as responsible for the costs associated with judicial procedures (litigation expenses insurance and third party funding). The chapter wishes to highlight the varied possibilities for agreements to transfer costs of civil litigation available in the Brazilian legal system from a comparative perspective, and analyze some of the main related issues, such as the potential conflicts of interest, duties of information and disclosure, the risk of “shadow litigants” controlling the claims, and the normative effects that are expected to derive from the interaction of third parties with both the parties and the court.
Funding a civil procedure is of great importance, and funding of enforcement proceedings concerns socio-economic constitutions in different countries. A balance between the input of public resources of the state and the costs borne by the parties should be accomplished. Rules for litigation costs could serve as the basis for the rules for enforcement costs. Litigation costs paid by a party concerned to the court shall include case-filing fees, application fees and other expenses. The case-filing fee shall be prepaid by the plaintiff. Merely the litigation costs incurred in courts are recoverable from the losing party while attorney fees are not eligible for cost-shifting. In contrast, the enforcement application fee need not to be prepaid, which means that the ordinary operation of enforcement proceedings is promoted and financially supported by the courts. However, the enforcement creditor still ought to pay the fees for judicial identification and assessment in advance which are then recoverable after the successful enforcement proceedings. Since there is no issue of costs prepaying, there is no need to prepare any cost-shifting rule hereby, and the attorney fees are also not recoverable. As the situation in civil proceedings, the allocation of enforcement costs between the state court and the enforcement creditor is related to the efforts of the court during enforcement proceedings. Although the "court pays" principle is prevailing, there are still doubts based on the interests of general tax-payers. Instead, there are recently public enforcement service paid by the creditor and privatized enforcement systems.
CAO Zhixun (2022)
This chapter addresses the issue of funding of claims in investor-state dispute settlement (ISDS), aiming to investigate whether the mechanism of “third-party funding” (TPF) could facilitate access to justice for a potential claimant. After a preliminary assessment on the role of the individual in the context of international investment law, the chapter will focus on the possible identification and recognition of the right of access to justice in investment arbitration, notably through the indirect analysis of denial of justice and the relevance of bilateral investment treaty provisions. Once the main aspects of access to justice in ISDS have been addressed, the problematic nature of high costs in investment arbitration procedures will be discussed, which sometimes represents a real obstacle to access to justice, especially for small and medium-sized enterprises (SMEs). Against this background, the mechanism of TPF will be analyzed, first by defining the nature of the agreement underpinning it and then by looking at the potential legal implications might be. The overall conclusion reached is that, although TPF facilitates access to justice, there are several complexities that could make its use rather difficult in ISDS. The chapter ends with some recommendations to overcome the main obstacles.
Manfredi Marciante (2022)
This paper will examine the way that the constitutional protection of decent living emerged in the Greek legal order, initially through constitutional interpretation and after through constitutionalization in the recent constitutional amendment, all against a backdrop of severe budgetary deficits and strict financial obligations. The paper will first provide the context and background on state social policy up to the beginnings of the financial debt crisis in 2011. Thereafter, the discussion will turn to the crisis period itself and the fiscal EMU rules, and in particular the Golden Rule which obliged the adoption of austerity measures that adversely impacted social rights. Compliance with the Golden Rule found a counterbalance in the decent living principle as far the protection of social rights was concerned. The broad scope and means of implementing the decent living principle rendered as a Golden Principle in the face of the austerity measures adopted for financial reasons and placed a severe burden on social rights. Through the interpretive construction of the principle of fiscal sustainability, the courts found the way to implement the content of the Golden Rule which is not constitutionalized in the Greek legal order. Rather, eventually it was the Golden Principle that found its way to constitutionalization after 10 years of systematic implementation by the national courts under the judicial review of the constitutionality of the austerity measures. Finally, this paper will endeavour to show how the Golden Rule and Golden Principle—the former through constitutional interpretation, the latter through constitutionalization—established post-crisis a balance between the dual needs of establishing a robust state budget while maintaining strong social protection and social justice.
Styliani Christoforidou (2022)
YSEC Volume II (2021)
Triangulating Freedom of Speech: Business, Social Rights, and the Freedom of Speech in a Digital Age
Contents
This volume addresses the challenges associated with upholding freedom of speech where it conflicts with social rights, such as respect for private and family life and with economic rights such as the freedom to conduct a business or the rights of free movement.
We live in a digital age, where technology shifts happen faster than most people even realize. In this age, we have all become powerful: media powerful. We used to sit in silence in front of newspapers and TV screens and the world was explained to us by the few “who always knew what was right and wrong”. Today, thanks to the Internet, social media and Web 2.0, we can not only share our own thoughts with everyone in a more self-determined way, but we can also take part in public debate and even co-organise it ourselves. But, have we stopped to consider who sets the rules in this brave new world?
The empowerment of the individual challenges the “grand speakers” who are suddenly detecting “fake news”, echo chambers, and filter bubbles everywhere on the Internet.
Internet-based communication allegedly hinders us from the “one truth”; as if newspaper hoaxes, propaganda, and narrow-mindedness were an invention of the Internet. The current heated debate about “fake news”, copyright and “upload filters” shows that we are unsure of how to deal with the newer and more complex phenomena of Internet-based speech. In no small part is this due to the fact that an important benchmark - our constitutional compass - is still strongly rooted in the past. Constitutions change at a significantly lower speed than technology. Societal changes pull constitutional changes; but what about normative content control?
Already there are demands for “old-times clarity”: truth filters on social media platforms, horrendous sums of liability for platforms that encourage (over-)thorough cleaning up and, if some had their way, ideally an “Internet truth advisory board”. However, it is equally true that private individuals “regulate”: they decide what is found on the Internet and who may post on a platform. Who will protect us from the threatening care curate?
Chapters
In today's networked world, technology shifts happen faster than most people even realize. Some of these shifts have made us all potentially powerful: media powerful. We used to sit in silence in front of newspapers and TV screens and the world was explained to us by the few “who always knew what was right and wrong”. Today, thanks to the Internet, social media, and Web 2.0, we can not only share our own thoughts with everyone in a more self-determined way, but we can also take part in public debate and even co-organise it ourselves. Of course, the internet is not the counter-draft to the communication (power) structures of the past. Gains in communicative self-determination are threatened due to algorithmisation, platformisation, and value extraction from self-created private markets in data capitalism. However, there is arguably more potential for self-determination in the technology relating to the Internet, social media, and Web 2.0 when it comes to mass communication by individuals than there has ever been before with "old media".
The empowerment of the individual challenges the old “grand speakers” who are suddenly detecting “fake news”, echo chambers, and filter bubbles everywhere on the Internet. Internet-based communication allegedly hinders us from the “one truth”; as if newspaper hoaxes, propaganda, and narrow-mindedness were an invention of the Internet. The current heated debate about “fake news”, copyright and “upload filters” shows that we are unsure of how to deal with the newer and more complex phenomena of Internet-based speech. In no small part is this due to the fact that an important benchmark – our constitutional compass – is still strongly rooted in the past. Constitutions change at a significantly lower speed than technology. Societal changes pull constitutional changes; but what about normative content control?
Already there are demands for “old-times clarity”: truth filters on social media platforms, horrendous sums of liability for platforms that encourage (over-)thorough cleaning up and, if some had their way, ideally an “Internet truth advisory board”. However, it is equally true that private individuals “regulate”: they decide what is found on the Internet and who may post on a platform. Accounting for all interests at play and to strike a "fair" balance avoiding both a public or private care curate by over- or under regulation is a complex matter. The authors of this volume do not only provide reflections in their highly topical contributions, but also suggest their understanding of what accounts to a "fair balance" within the larger frame of freedom of speech in a digital age.
New technologies have had an impact that is both positive and negative on freedom of speech, constitutional rights and democratic processes. It was positive in the early stages of the development of the Internet and particularly in the early stages of Web 2.0, when the Internet was designed in a more participative and cooperative manner. In recent years, nevertheless, hierarchical processes of information and data organisation have appeared through large technological companies that monopolise the distribution of information and opinion and which are the new mediators between users and the public sphere. Freedom of speech is currently constrained by these mediators, namely large technological companies that control the communicative processes. This paper analyses the role that these new mediators are developing, taking into account their impact on freedom of speech and on the configuration of the public sphere in democratic systems.
Two elements stand out among the new mediators: the dialectic of freedom of speech is shifting from the public to the private sphere and from the state to the global sphere. These are two elements that together help fuel the power of the new mediators and weaken the state’s capacity for regulation and control. But in the ecosystems developed by technology companies, the new mediators exercise a power that is not strictly private since they occupy and monopolise a public sphere. In the environment created by the new mediators, freedom of expression becomes a mere commercial product, so that information and opinion are transformed into ephemeral merchandise organised through the algorithms of Internet applications, which decide their impact on and their incidence in the public sphere.
These algorithms have been created with an economic purpose and promote fake news and radicalisation to attract the attention of the public and thus generate greater profit. The new mediators, by promoting fake news in democratic contexts (without trying to impose a specific narrative, as in dictatorial ones), generate a destructive tension about reality. Instead of contributing like the traditional media does to the social construction of reality or as in dictatorships to the reconstruction of reality based on the interests of the dominant oligarchy, they are causing the “destruction” of reality, that is, of a shared social perception of reality.
Among the many measures that can be adopted, those related to competition law stand out, with institutional measures through regulators that may avert an even greater concentration of power. However, rather than restrictions, it is openness that is desirable—open technology that puts an end to the closed-off, hierarchical nature of applications. Telephone communication, for example, is open and allows mobile phone operators to operate, making global communication possible, and the same is true for e-mail servers. Communication applications that are currently closed-off (WhatsApp and Telegram, for example) should also be open, intercommunicable and managed by a plurality of operators.
Freedom of speech in the digital era comes with a number of open issues, including the role of regulation, of the markets as well as that of the public sphere. In many of the related issues, tensions of constitutional and social nature resurface. This is also the case with some recently introduced EU policy initiatives and legal rules to digital speech. While they seem to give ground to EU wide rules on some important issues, their reach can remain limited without a constitutional and social understanding of the matters at hand. Thus it appears in many ways beneficial to have a wider outlook and analysis on these topics, including on the constitutional and social ramifications of regulating freedom of expression today. This article sets an example to that and joins these threads together in its analysis. By doing so, the work aims to contribute towards obtaining a wider outlook into an evolving domain which has global implications.
Anna Aurora Wennäkoski (2021)
Internet speech provides opportunities for democratic discourse but has also proven to cause harm to democracy by elevating disinformation, harassment, and extremism. Regulating power in the digital world challenges traditional understandings of freedom of expression and might require a legal response at the constitutional level. This article explores how internet speech and freedom of expression have been addressed in three constitutional reform processes commenced after the 2008 financial crisis, in Iceland, Ireland, and Norway. In all cases the novel or emerging problems involving internet speech, and the power of internet platforms in particular, were missed by constitutional reformers while positive aspects of internet speech were embraced and granted constitutional protection. The experiences highlight, among other things, the importance of timing of constitutional reform: Reformers necessarily focus mostly on problems of the past but the timing of a "constitutional moment" may not be optimal to address what will become pressing problems. Reformers are constrained, or perceive themselves to be constrained, by international law and traditional constitutional law doctrine where the state is the principal risk for fundamental rights, the power of private entities, including internet platforms, goes unaddressed, and the global scale of internet speech, far beyond the territorial jurisdiction of constitutional law, presents various complexities.
Up until very recently, AI-generated, or more precisely, machine learning (ML) generated content was still in the realm of sci-fi. A recent series of important inventions gave AI the power of creation: Variational Autoencoders (VAEs) in 2013, Generative Adversarial Networks (GANs) in 2014, and Generative Pre-trained Transformers (GPT) in 2017. Synthetic products based on generative ML are useful in diverse fields of application. For example, generative ML can be used for the synthetic resuscitation of a dead actor or a deceased loved one. Can ML be a source of speech that is protected by the right to freedom of expression in Article 10 ECHR? In contrast to a tool, like a pen or a typewriter, ML can be such a decisive element in the generative process, that speech is no longer (indisputably) attributable to a human speaker. Is speech generated by a machine protected by the right to freedom of expression in Article 10 ECHR? I first discuss if ML-generated utterances fall within the protective scope of freedom of expression (Article 10(1) ECHR). After concluding that this is the case, I look at specific complexities raised by ML-generated content in terms of limitations to freedom of expression (Article 10(2) ECHR). The first set of potential limitations that I explore are those following from copyright, data protection, privacy and confidentiality law. Some types of ML-generated content could potentially circumvent these limitations. Secondly, I study how new types of content generated by ML can create normative grey areas where the boundaries of constitutionally protected and unprotected speech are not always easy to draw. In this context, I discuss two types of ML-generated content: virtual child pornography and fake news/disinformation. Thirdly, I argue that the nuances of Article 10 ECHR are not easily captured in an automated filter and I discuss the potential implications of the arms race between automated filters and ML-generated content.
Transnational digital platforms have contributed greatly to freedom of expression, not least including easy access to information. However, they have also enhanced private life infringements such as the unconsented distribution of nudity, sexual activities and fake porn.
We may look to the European Court of Human Rights (ECtHR) which has dealt extensively with the balancing of freedom of expression and the protection of private life. The Court has developed a set of criteria to balance the rights; The criteria are not perfect, but they are workable, and they include criteria such as ‘contribution to a debate of general interest’ and ‘the methods involved’ when collecting and distributing information, including pictures.
However, companies including transnational digital platforms, are not legally bound by international human rights law, only states are. To address this, the UN has developed United Nations Guiding Principles to Business and Human Rights. These Principles do not create legal obligations, but duties including the duty to address human rights adverse effects of their activities. So far, the transnational digital platforms have done little, if anything at all, to address private life infringements. As of late, Facebook has indeed established an Oversight Board and declared its commitments to the UN Guiding Principles. This is a step in the right direction but overtly insufficient, as it solely addresses infringements of freedom of expression, but not any other human rights infringement such as violation of private life.
Sten Schaumburg-Müller (2021)
This chapter focuses on platforms’ protection against (unjustified) interference with the free drafting of house rules, viewed through a lens of European fundamental rights protection. It discusses the difference in protection of two fundamental rights in the European Charter of Fundamental Rights: article 16’s freedom to conduct a business and article 17’s right to property. The articles’ subject of protection (“the essence of the right”) will be mapped by analysing the CJEU’s case-law between respectively 1974 and 1979 until 2020 and the outcome of this analysis will be applied to the process of running a platform. It will show that article 16, rather than article 17, covers platforms’ house rule-drafting. However, it is unlikely that restrictive measures will interfere with the essence of article 16. Measures limiting house rule-drafting can therefore be justifiable.
To be justifiable, the measures must live-up to the principle of proportionality. Therefore, subsequently, the question arises whether potential measures live up to this principle. To prevent a purely normative answering of that question - due to the fact that a standardized test does not exist - the Unfair Contract Terms Directive’s unfairness test will be used as interpretational guidance. It is concluded that measures limiting a platform’s contractual freedom can, and most likely will, be justifiable to protect platform users’ freedom of expression. That opens the door for future legislation.
Outside the direct realm of platforms, this chapter demonstrates that the freedom to conduct a business has been reduced to an empty shell, or rather, a shell that has never been inhabited. Apart from the situation where an undertaking would be able to demonstrate that a proposed measure would mean the end of the business, the freedom to conduct a business does not provide any effective protection.
In the wake of the 2020 presidential election, incumbent Donald Trump voiced dubious allegations of vote fraud. In response to that, social media giants Twitter and Facebook made a dramatic step of attaching corrective statements to the U.S. president’s posts. By doing so, they highlighted their power over core political speech. In his 2014 article ‘Old-School/New-School Speech Regulation‘, influential American legal scholar Jack Balkin argued that today speech is often suppressed by private actors, controlling the digital infrastructure, rather than directly by governments.
In a follow-up article ‘Free Speech in Algorithmic Society‘, Balkin suggests that there is a triangular relationship between governments, corporations and end-users. My contribution will discuss this triangulation in the context of electoral speech. In recent years, the threat of foreign interference in elections became a widely discussed issue in established democracies. These discussions specifically highlighted the role of social media. They have also led to an increasingly aggressive policing of election-related content on major platforms such as Facebook and Twitter.
This Chapter suggests that securitization of elections in established democracies occurs primarily as cooperation between private actors and governments. The apparent exclusion of end-users is a worrying tendency. It obscures the distinction between established democracies and competitive authoritarian regimes, ultimately undermining the very democratic legitimacy that needs to be secured. I argue that, given the role of social media companies in the current environment, their obligations go beyond the traditional notions of corporate social responsibility. These companies have de facto assumed the role of a regulator effecting election securitization in online speech. I suggest that such (self-) regulation could only be proportionate, if internationally recognized standards of free elections are taken into account.
The chapter discusses possible interactions between free speech and antitrust. Antitrust law is typically associated with economic phenomena and competitive market conditions. However, claims have been made during the ongoing debate over the role of Big Tech that antitrust enforcement should also be concerned with the exercise of free speech. The chapter shows that while such claims can be seen as controversial, they are not fundamentally ill-conceived, as antitrust law used to interact with free speech and used to be more focused on safeguarding political values, not merely efficiency. Since the free speech narrative is more present in the United States, the chapter covers the US perspective, but it ultimately aims at making a link between free speech and EU competition law, drawing a framework of possible interactions. The main conclusion of the chapter is that while more interaction between free speech and antitrust had been seen in the past in the United States, EU competition law can be in fact more flexible when it comes to accommodating the interests of free speech.
Globalisation leads to technology diffusion which is inevitably linked to the selling of sensitive surveillance technologies. States and the private sector are close collaborators in the market for digital surveillance tools which are a part of a new generation of disruptive technologies. As new technologies filter information, they have the potential to limit the freedom of speech or violate the right to privacy. As such, new means to mitigate their misuse and proliferation, including instruments outside of the box of traditional export control regimes, should be considered. This chapter explains the role of surveillance technologies and their effects in suppressing the right to privacy and the freedom of speech in a digital age. Next, it identifies current legal regimes of export control and its limits under the Waasenaar Arrangement. In this context, it also considers the particular EU latest development with regard to the Dual-Use Export Regulation and business due diligence. Further, it turns to private self-regulation and the need to comply with the OECD Guidelines on Multinational Enterprises and the UN Guiding Principles on Business and Human Rights and calls for more standard-setting built on their principles.
The issue of investor nationality has been one of the most problematic issues in investment law since its inception. Indeed, the drafters of the ICSID Convention were well aware of this and, although they finalised a Convention that does not include a definition of investment, they did include a detailed definition of ‘national of a Contracting State’ in Article 25(2). The nationality of the investor is in fact a crucial factor for the definition of the rules applicable to the protection of the foreign investment, as well as for the identification of the jurisdiction of any arbitral tribunal called to settle a dispute between an investor and the state hosting the investment. Furthermore, questions about investor nationality underlie problems of treaty and forum shopping in the system of investment law. For these reasons, the Nationality of Corporate Investors under International Investment Law is a timely contribution to the study of this problem.
This short essay reviews Nicolas M. Perrone’s Investment Treaties and the Legal Imagination: How Foreign Investors Play by Their Own Rules and reflects on how this book contributes to the debate on the origins of international investment law and the role of investors in shaping such an unbalanced international legal regime.
YSEC Volume I (2020)
Common European Law on Investment Screening (CELIS)
Contents
This Volume presents the very first, interdisciplinarily grounded, comprehensive appraisal of a future “Common European Law on Investment Screening”. Thereby, it provides a foundation for a European administrative law framework for investment screening by setting out viable solutions and evaluating their pros and cons.
Daimler, the harbour terminal in Zeebrugge, or Saxo Bank are only three recent examples of controversially discussed company takeovers in Europe. The “elephant in the room” is China and its “Belt and Road Initiative”. The political will in Europe is growing to more actively control investments flowing into the EU. The current regulatory initiatives raise several fundamental, constitutional and regulatory issues. Surprisingly, they have not been addressed in any depth so far. The Volume takes stock of the current rather fragmented regulatory approaches and combines contributions from leading international academics, practitioners, and policy makers in their respective fields. Due to the Volume’s comprehensive approach, it is expected to influence the broader debate on the EU’s upcoming regulation of this matter.
YSEC is addressed to readers from academia as well as to representatives from government, business, and civil society.
Chapters
This chapter provides an introduction to the following 30 contributions written by leading Asian, European and North American experts on foreign direct investment on the recently adopted Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investment into the Union (hereinafter the EU Screening Regulation). It is the result of a conference organized at the University of Gothenburg in March 2019, just 2 weeks before the EU Screening Regulation was adopted. The volume takes stock of the historic move towards a Common European Law on Investment Screening (CELIS).
Over time there has been a major shift in the assessment of the pros and cons of free capital flows. In the Treaty of Rome, a safeguard clause confined the obligation to liberalize capital movements “to the extent necessary to ensure the proper functioning of the Common Market.” Up till the early 1980s, the stabilizing role attributed to capital controls outweighed the textbook economic costs of controls. The establishment of the European Monetary System marked a new beginning as freedom of capital movements was seen as forcing economic discipline and promoting economic reforms and the convergence of policies. Most motives for controlling capital movements no longer apply as the incompatible trinity of having free capital flows, stable exchange rates and autonomous monetary policy at the same time is resolved by the transition to the euro. At the same time, national security and critical infrastructure concerns have gained prominence. The EU framework for investment screening that was agreed to address these concerns should not infringe upon the acquis of free capital flows. Economic interests should not be mixed with national security concerns, and investment screening should not become an extension of industrial policy. Alternative approaches are proposed that would address concerns of intellectual property and reciprocity. Lessons are drawn from an earlier episode when similar concerns were raised with respect to Japan. The negotiation of a bilateral investment treaty between the EU and China, including mutual access rules, would further the view that Europe profits from remaining open to the outside world while European corporations operate on a level playing field.
China is the panda in the room: its extensive foreign investment policy in recent years, whilst only incrementally opening its own internal market, serves as justification and yardstick for investment screening worldwide. But asymmetrical investment policies and the One Belt One Road initiative only provided the trigger for political action in Europe. The EU investment screening mechanism is justified by concerns that are mainly related to public security. This was overdue. However, the procedure set up does not provide sufficient legal certainty, given the various undefined and vague terms, including public order. The cooperation mechanism might therefore, contrary to its laudable intentions, become another element in the ongoing efforts by the EU Commission to politicize investment law, allowing for political horse-trading. It is further argued that economic statecraft demands a clear commitment to the rule of law and to the positive economic aspects of FDI. Investment screening should not become part of the overall negative stance that the EU took relating to investment protection as such. This approach has already undermined the trust of many investors in the integrity of the EU legal system. Attaching new regulatory hurdles to the free flow of capital should serve the purposes of the EU, which include free and fair trade, the integration of legal and economic systems, and a global level playing field.
Stephan F. Wernicke (2020)
This chapter deals with the process that led to the adoption of the EU Screening Regulation. The chapter starts with a description of the political debate that sparked the idea to harmonise the screening of FDI in the EU. Having laid down the political and economic context, the author describes the legal context where the EU Screening Regulation was to fit in before presenting a detailed account of the legislative process, predominantly from the perspective of the European Parliament.
Joanna Warchol (2020)
At the end of 2018, the German and French governments substantially tightened the applicable regulatory framework for the review of foreign investment by significantly extending the investment sectors subject to review and by lowering the relevant thresholds triggering the screening mechanism. For this reason, this chapter demonstrates and analyzes the current foreign investment control regimes in Germany and France. In particular, the strong tendency by both governments towards a stricter approach regarding the screening of foreign investment and the legal implications thereof will be outlined. It will be shown that foreign investment screening in Germany and France has become a serious public policy instrument to safeguard national economic interests.
This chapter addresses the investment screening mechanisms of Spain, Portugal and Italy and the choice by Greece not to implement a formal screening mechanism, testing them against the aims and requirements of Regulation (EU) 2019/452. It is argued that the four countries analysed in this chapter share a common liberal approach to foreign investment, which pervades their domestic laws on the matter, and that such approach appears capable of ensuring full cooperation between southern European countries and the EU Commission towards a common European framework for the screening of foreign investment.
In this chapter, the authors present the current state of national legislation in Poland, Lithuania and Latvia enacted to protect national and public security in the context of foreign direct investment (FDI). The authors discuss the following aspects related to FDI screening: investors subject to screening, protected objects, transactions subject to screening, screening criteria, competent authorities, procedures, administrative/judicial review and consequences of unlawful transactions. Thereafter, an analysis of the different national legal regimes is made in the light of the EU Screening Regulation.
Marek Jaśkowski, Szymon Pawłowski (2020)
Romania does not yet have a separate law regulating the screening of foreign investments. Therefore, it is difficult to argue that the 2011 amendment to Romania’s Competition Law, which allows the blocking of a takeover for national security reasons, can be considered a comprehensive investment screening mechanism under EU Regulation 2019/452. If it can be considered as such, then the summary procedures described in the Competition Law fall short of the requirements of the EU Regulation. Compared to Romania, Hungary has very recently adopted Law LVII of 2018 and Government Decree 246/2018, which set up a detailed investment screening mechanism for national security reasons, in sensitive economic sectors. The Hungarian mechanism is mostly in line with the Regulation’s mandatory minimum requirements. It only falls short when it comes to better detailing some of the grounds based on which non-EU, non-EEA, or non-Swiss foreign investors can have their investments blocked, and it does not include provisions on the protection of sensitive information. It is to be seen how effective the Hungarian mechanism becomes as a number of foreign investors will be affected by it.
This chapter analyses Acts (here, the translation of ‘lag’ and ‘lov’ into English is ‘Act’) on investment screening and protective security agreements in Finland, Norway, Sweden and Denmark. To put the existing Acts into perspective, also potential future Acts are discussed. The following questions are asked: Which acquisitions are screened/monitored or subject to protective security agreements? Which sectors and factors are considered? Which are the reasons for rejection? This chapter shows that Sweden, Norway, Denmark and Finland have quite different systems. Out of the four countries, Finland has the only investment screening mechanism, but to accommodate the new EU Screening Regulation on investment screening, the Act needs to be somewhat updated.
This chapter focuses on procedures and mechanisms to control foreign direct investments into the EU banking and insurance sector. It explains and analyzes the relationship between the prudential ownership control procedures under EU supervisory law and the proposed FDI screening mechanisms under Regulation 2019/452. In the outset, an overview on prudential ownership control and the FDI screening mechanisms under Regulation 2019/452 is given. Then the main areas and principles of prudential supervision are described for credit institutions, insurance companies and investment firms, followed by a detailed explanation of prudential ownership control requirements and procedures. On this basis, an analysis of the new framework for the screening of foreign direct investments under Regulation 2019/452 is undertaken with regard to the possible design of the screening mechanisms, the application of such mechanisms to financial institutions in addition to the prudential ownership control procedures and the new cooperation mechanisms between Member States and the Commission. The analysis shows that Member States are not obliged to adopt an FDI screening mechanism for foreign direct investments into financial institutions. As prudential ownership control requirements always apply, a Member State may refrain from setting up an additional FDI screening mechanism if security and public order in the sense of Regulation 2019/452 are effectively protected by prudential ownership control procedures. This may be the case with regard to the protection of the financial infrastructure of the Member States and the Union against risks posed by certain foreign investments; the same could be held with regard to the protection of sensitive data collected by financial institutions and to the defence against foreign investors involved in criminal activities. So far, the prudential ownership control procedures may be described as a hidden investment screening mechanism already in place. However, as the prudential ownership control is neutral as to the origin of a foreign investor and does not discriminate against certain foreign states, it may be necessary for Member States to set up an FDI screening mechanism at least to screen the proposed acquisition of qualifying holdings in financial institutions by certain foreign states and state funds. Furthermore, Regulation 2019/452 provides for cooperation mechanisms between Member States and the Commission with regard to foreign direct investments, independent of whether such investments are subject to FDI screenings or not, for which there is no corresponding concept under supervisory law.
The contribution gives an overview of existing secondary law that can be perceived as hidden control mechanisms and barriers to foreign investment into defence and security companies. Such provisions can be found in merger control law, public procurement law, and R&D funding instruments. In addition, the piece examines the role of Article 346 TFEU as a means to enable national investment screening measures in the defence sector, and the correct interpretation of the provision.
One of the main characteristics of the transport sector is its enormous demand for long-term financial investments in physical infrastructure, which is hardly matched by any other sector. Traditionally, these investments are still undertaken mostly by public bodies, i.e. by the State itself, its organs or private entities under public control and supervision. However, there are continuously shrinking public finance capacities in many areas, and this also includes the transport sector. At the same time, there is an ever-increasing investment demand to replace or at least overhaul ageing infrastructure like roads, railway networks, inland waterways and transport hubs (sea ports and airports). On the one hand, the resulting infrastructure gaps might be partially bridged by private investors—although private investors usually take a rather cautious approach when it comes to financial “adventures” in the area of upgrading any physical transport-related infrastructure. On the other hand, the transport sector is part of the legal understanding of “critical infrastructure” where EU-wide investment screening is generally possible in the future. It is submitted, however, that this inclusion will not generate any significant negative effects or political concerns. The general message in the transport sector is that any large-scale private investments are most welcome—although they still might be subject to a screening exercise at the domestic level, less likely by the European Commission. It is difficult to imagine scenarios where private investments cannot be brought in line—at least via negotiations and contractual clarifications—with existing projects or programmes of EU interest or where security or public order would be negatively affected. As a result, Regulation (EU) 2019/452 will neither generate negative effects in the transport sector, nor will it boost any foreign direct investments in an area where it is already most difficult to attract sufficient private capital to address public needs.
To a large extent, the energy sector consists of what can be termed critical infrastructure. It is therefore not surprising that the EU’s new foreign direct investment screening mechanism also includes the energy sector.
However, existing EU legislation has provisions that can perform the same function as the more formal screening mechanism. This chapter presents and analyzes this legislation. It is concluded that the present EU energy legislation already contains tools regarding investment control.
Bent Ole Gram Mortensen (2020)
This chapter analyses whether European IT and telecommunications law provides any possibilities to ban direct investments and network supply by third country-companies. A closer look onto the prohibitions of discrimination and the concept of general authorisation shows that preventive investment control in general is neither intended nor justified by the relevant EU directives. Even when interpreting German eligibility requirements for admission to the frequency auction (5G), the main purposes of European telecommunications law—open competition and technological dynamism—hinder a strict exclusion of suppliers from third countries.
The chapter reviews the mechanism of foreign direct investment controls as implemented in Russia under the auspices of the Federal Law “On Foreign Investments in Russia” No. 160-FZ and Federal Law No. 57-FZ “On the procedure for making foreign investments in companies which are of strategic importance for ensuring the country’s defence and state security”. The author examines the definition of the foreign investor provided by the laws, analyzes the types of activities deemed of strategic importance for national defence and security and describes the thresholds triggering obligations of obtaining prior clearance of foreign investment transactions. A separate section of the chapter is devoted to the analysis of the procedures for obtaining clearances and the consequences of non-compliance. The paper also addresses other rules of the Russian legislation that restrict foreign direct investment to Russia. In the last section of the chapter, the author summarizes the experience of 10 years of application of foreign direct investment control mechanisms in Russia and poses questions on the possible implications of Russia’s experience for the EU Regulation establishing a framework for the screening of foreign direct investments into the Union.
As the European Union implements its new regulation on the national screening of foreign investments, it is useful to be mindful of both the contrast (in terms of jurisdiction) and similarities (in terms of substantive areas of focus) between the EU and the U.S. foreign investment review processes. This chapter provides an overview of the U.S. foreign investment review process, including how it has evolved and where it is heading following recent statutory changes.
Japan restricts foreign investments by requiring foreign investors to submit a posttransaction report in general circumstances and a prior notification only when the investment involves certain industries or locations. The competent ministers then screen such investments to determine which are likely to impair national security, public order, or the public safety of Japan or have a significant adverse impact on the smooth operation of the Japanese economy. The most recent amendment to the Japanese regulation lowers the share or voting right acquisition threshold for prior notification from the current 10% to 1% of the total number of shares or voting rights. Although the amendment also introduces an exemption system for foreign investments that do not pose threats to national security, since the change in the threshold for prior notification is relatively large, the amendment is drawing attention from both domestic entities and foreign investors. This chapter introduces the current Japanese foreign investment regulation system and explains the most recent amendment of November 2019, which is expected to enter into effect next spring, along with the purpose behind the amendment.
When China began to institutionalize foreign direct investment in the 1980s, the foreign direct investment (FDI) regime was characterized by a case-by-case approval system in terms of FDI screening. It was later supplemented with an industry guideline for foreign investment in the mid-1990s. In recent years, with the changing situation for global FDI flow and economic landscape in China, China’s FDI regime has undergone a sweeping reform. The traditional regime of FDI screening based on the case-by-case approval and the industrial policy for FDI has given way to the “pre-establishment national treatment plus negative list” approach in the new Foreign Investment Law of the People’s Republic of China. This chapter will examine China’s FDI screening mechanism and, in light of the current social and economic situations, explore the features of the new FDI screening regime in China vis-à-vis that of the EU.
An examination of the respective roles of Member States and the EU in establishing investment screening mechanisms must consider several aspects. On the one hand, investments are an important source of growth, jobs and innovations. On the other, investments can be detrimental to the security of supply in relation to services essential for Member States – for example, when a state-owned company, which is located in a third state, gains control over the only electricity station in a region through investment. This could possibly lead to Member States getting exposed to the risk of being blackmailed or being entirely dependent on other states or foreign companies. To mitigate such risks, the German Federal Ministry for Economic Affairs and Energy lowered the threshold for the national screening mechanism to 10% for investments in certain companies that own critical infrastructure. Simultaneously, the European Union has adopted Regulation 2019/452 establishing a framework for screening of foreign direct investments (hereafter the EU Screening Regulation). These events pose the question of whether the Union itself or the Member States are vested under Union law with the power to adopt investment screening mechanisms, and also which additional legal requirements must be considered in that respect. These questions are answered in three steps. First, an overview of the essential terminology and the intensity of the risks of investments out of third states can cause for the Member States is provided. Second, the competences of the Member States in this area must be examined in light of the fundamental freedoms and the exclusive competence of the Union for the Common Commercial Policy. Third, a closer look will be taken as to the conformity to primary law of the EU Screening Regulation, against the backdrop of the principle of conferral and EU fundamental rights. The analysis will show that Member States are only allowed to adopt rules dealing with direct investments out of third states; the European Union enjoys a wider scope to introduce investment screening mechanisms. However, the conditions provided in the specific provision providing for legislative power may not be disregarded. With this in mind, the EU Screening Regulation is built on uncertain ground, as it allows the Member States to establish individual “commercial policies”, which is contrary to the spirit of Article 207 para 2 TFEU on which this secondary legislation is based.
The following comments are inspired by the thoughtful analysis by Stefan Korte: “In Search for an EU Competence to Establish an Investment Screening Mechanism and Restricting Effects Flowing from Fundamental Freedoms, Fundamental Rights, and Other EU Primary Law” (Korte, Stefan, In Search for an EU Competence to Establish an Investment Screening Mechanism and Restricting Effects Flowing from Fundamental Freedoms, Fundamental Rights, and Other EU Primary Law, in this volume.). It should be made clear that the ambition and scope of these comments is not to address all issues or arguments presented by Korte; rather, the comments are limited to three distinct but interlinked issues: the structure and function of Article 207 of the Treaty on the Functioning of the European Union (TFEU), which leads to an analysis of the role of Article 65 TFEU in explaining national screening mechanisms, and finally the legal basis for Union measures found in Article 64(2) TFEU.
Investment protection is currently pursued for reasons of strategic economic policy. It is the expression of a new geoeconomic rivalry that has created antagonisms and displaced the previous belief in the value of unlimited freedom of movement of capital and freedom of establishment. The paper examines how the new investment protection policy is conducted with recourse to the concepts of “security” and “order.” The paper develops a normative framework with which the rationality of this policy can be assessed and criticized. The resulting picture is ambivalent. There are good reasons to protect investments. However, the existing mechanisms identify these reasons only insufficiently, and the mechanism is only partially “fit for purpose.”
The qualification of a transaction as ‘foreign direct investment’ (FDI) and, more specifically under Regulation (EU) 2019/452 (Screening Regulation), as third country direct investment opens—or closes—the scope of application of the Screening Regulation. Yet the Screening Regulation leaves many questions on that concept open. Therefore, this contribution aims at tackling some of the questions. It comes with two major parts: Sections 2–4 embed FDI in general and the Screening Regulation specifically in broader political and legal contexts, and Section 5 analyses specific legal elements of third country direct investments under the Screening Regulation. Section 2 outlines general fundamental global challenges that affect FDI law and politics. Section 3 contextualises third country investments within relevant EU law. The analysis shows that the Regulation’s definition of direct investments is just transplanted from the three-decades-old Capital Movements Directive. Also, this contribution argues that all third country investments are protected by the freedom of capital movement. They also fall within the scope of protection of EU fundamental rights. Section 4argues for a very fundamental approach: the EU and its EU Member States should strive for a common European screening law and politics. Such a common European understanding goes beyond hard law: it includes the political and legal willingness to discourse and cooperation in order to develop a coherent FDI policy even without a legal obligation under EU law to do so. Yet this section emphasises that the Screening Regulation is set in uneasy contexts. The Regulation is a new policy, it is a key concept in the global struggle for adequate rules, it comes with the temptation of being used as a bargaining chip in international negotiations, and it may generate spillover effects on the internal market. One facet to tackle these uneasy contexts is to apply a strictly legal approach to the Regulation, not to fall prey to ‘reciprocity arguments’, and to consider international law more seriously. Section 5 is the legal centrepiece of this contribution. It starts with an analysis of the Regulation’s definition of direct investments as ‘aiming to establish or to maintain lasting and direct links’ between the investor and target. Whether a transaction qualifies as direct investment or as (mere) portfolio investment should be reviewed under an objective test; the investor’s subjective intentions on how to use the acquired shares do not constitute a legally sound basis. Next, this contribution argues that transactions also qualify as third country ‘direct’ investments if the transaction results in indirect links between a third country investor and an EU target; this would be the case in parent-subsidiary structures on the acquirer’s side. A further focus lies in the analysis of what it means for an investment to bring the opportunities for ‘effective participation in the management or control’ of the target. This contribution argues that an understanding of ‘control’ should seek inspiration from other EU law areas such as the EU merger control law, that ‘management’ should be interpreted in a broad manner (which could include ‘supervisory bodies’) and that the investment-management/control nexus should be fleshed out by a common European quantitative-qualitative approach. Furthermore, this contribution considers ex post screening challenges and the Regulation’s anti-circumvention clauses. The section closes with discussions on third country investors and third countries. While the nationality of the investor’s shareholders must not be taken into consideration, this contribution argues that ‘doubly organised undertakings’ (which have essential corporate relationships to both an EU Member State and a third country) should be qualified as third country investors. Lastly, several categories of countries are analysed regarding their third country qualification: the Organisation for Economic Co-operation and Development (OECD) countries, overseas countries and territories, the European Economic Area states, Switzerland, and the post-Brexit UK.
Following the example of a number of countries, the European Union recently introduced a regulation for a screening mechanism for foreign direct investments. Also preceding the formal EU-wide screening mechanism, major foreign investments, such as pipelines, could be screened by EU Member States, either formally or informally. The Nord Stream 2 (NSP2) pipeline project has been subject to a number of measures in the different phases of its investment that could be understood as informal screening processes. Such measures have been taken not only by the EU and its Member States but also by the United States in the form of extraterritorial sanction threats. In this chapter, experiences with these mechanisms are discussed with the aim of determining whether a common approach, as adopted in the EU, is necessary and desirable.
The purpose of this chapter is to assess the future development of the EU’s foreign direct investment (FDI) screening legislation. This chapter takes as a starting point the newly adopted EU framework for the screening of foreign direct investments into the Union (hereinafter referred to as the “EU FDI framework”) and predicts the evolution of the rules in this legal regime by a comparison of how the EU export control regime has developed over the last 30 years. The two legal regimes share tensions between national security interests of the Member States and Union interests and exclusive competence. The regulatory separation of the export control of military equipment and that of so-called dual-use items allowed for more powers to be moved to the EU, which in turn resulted in more common EU provisions for Member States and private operators. The author concludes that something similar may happen with the FDI framework. As the export control rules still stand and continue to evolve, it is reasonable to expect that the EU FDI screening mechanisms will remain and continue to evolve for the next 25 years.
China is emerging as an economic powerhouse with the globalisation of the world economy. The country takes proactive steps to deepen its global engagement through new initiatives, such as One Belt, One Road (OBOR). It offers good evidence of China’s mercantilist efforts to derive political and geostrategic leverage from the OBOR-related projects. The initiative serves as a key indicator of whether China is primarily to satisfy its national interests or whether it seeks to create a win-win Eurasia. No ready formula can suffice to explain the cross-cutting economic and political factors at play. Arguably, the OBOR initiative appears to be a combination of geopolitical and economic strategies to achieve China’s multiple strategies. It all comes down to whether China could be able to write global governance rules via the OBOR initiatives.
This chapter examines how screening of foreign direct investments could take place through European company law. It scrutinizes the contribution of both CJEU’s case law and the harmonization of European company law to an effective screening of foreign direct investments. On the basis of this approach, this chapter is divided into two parts. The first part focuses on CJEU’s case law, and the second part examines harmonization. An examination of the freedom of establishment of companies in the light of CJEU’s case law on corporate mobility sheds light on the screening of foreign direct investments. The impact of the privatizations of State-owned companies and of CJEU’s golden share case law on the screening of foreign direct investments is discussed. This chapter analyzes how certain harmonizing instruments of European company law could contribute to the screening of foreign direct investments. The relationship between the goals of the harmonization of European company law and the screening of foreign direct investments is also scrutinized. The Takeover Bids Directive with its optionality and reciprocity regime and with its requirements for disclosure of information could contribute to an effective screening of a foreign direct investment behind a takeover bid. Additionally, this chapter examines how the Shareholders Rights Directive II, the Transparency Directive, the Cross-Border Mergers Directive (repealed and consolidated into Directive 2017/1132) and the European Company Statute (Societas Europaea – SE) could contribute to investment screening. Some concluding remarks are deduced on the importance and effectiveness of European company law for the screening of foreign direct investments.
This chapter asks how and why investment treaty obligations of the EU or its Member States may affect the design and operation of EU and Member State investment screening mechanisms. It examines the scope of application of such investment treaty obligations in the area of investment screening on grounds of security or public order. It then assesses the potential for norm conflicts between such treaty obligations and legal acts of the EU or its Member States relating to investment screening by considering the manner in which such obligations are to be applied, taking stock of both the material content of the main applicable protection standards and available general and security exceptions. Finally, the chapter explores the available legal remedies by means of which such potential norm conflicts may be resolved and considers the effects of such remedies on the functioning of investment screening mechanisms.
This chapter examines the relationship between State aid rules and the EU Screening Regulation, which may be characterised as multifaceted. Whereas State aid law in its nature limits Member States’ room for manoeuvre in the sphere of industrial policy, the new EU Screening Regulation provides an arguably broad room for manoeuvre for Member States to intervene in markets to protect public security and public order. However, it may be argued that this broader manoeuvring room could lead to a clash between the two sets of rules. The first facet of the relationship between the rules that are examined is where FDI screening leads to the granting of State aid. This could occur in connection with privatisation of State-owned undertakings; FDI screening may lead to the undertaking being sold to the second-best bidder following a disqualification of the best bidder. Such a situation would prior to the entry into force of the EU Screening Regulation lead to State aid to the buyer. Another facet is third country subsidised FDI. Although this topic has not been addressed explicitly during the legislative process leading to the adoption of the EU Screening Regulation, there are traces of subsidised FDI being an issue of concern, and the EU Screening Regulation in certain ways facilitates that subsidisation of the FDI could be taken into account by the screening Member State. It is concluded that many stones in the relationship between State aid law/third country subsidies and FDI screening are left unturned by the EU Screening Regulation.
This chapter reviews the options of legal redress offered to non-EU investors seeking to place controlling investments in EU member states vis-à-vis measures taken by member states, their investment screening and control mechanisms (ISCMs) and the European Commission under Regulation (EU) 2019/452 (EU Screening Regulation). It matches investors’ goals with legal bases and fora for legal redress to outline procedural options of legal redress. Thereafter, the chapter focusses on the material criteria of review and finds that judicial review is significantly limited regarding the factors that allow ISCMs to screen, prohibit, condition or unwind investments. This finding is valid for the legal bases taken into account, i.e. national law, exemplified by German law, EU law and international investment law, although the legalistic realization of limited revisability varies. Litigation seeking to annul screening decisions of ISCMs or to recover damages in consequence of screening decisions or other actions taken by ISCMs thus faces somber prospects. Fully reviewable procedural rights of investors and the protection by international investment agreements in the post-entry stages of investment provide the most reliable grounds for litigation. The EU Screening Regulation’s pertinent provisions are analyzed and found not to change the legal status quo of third state investors seeking controlling investments in EU member states.
This chapter provides a doctrinal perspective on the EU Screening Regulation. It seeks to present, clarify, and assess the very rules contained therein. Following a sketch of the way in which the rules are organised in the Regulation, the chapter discusses in more detail the rules that are directed at the establishment of “a framework for the screening by Member States of foreign direct investments into the Union on the grounds of security or public order”. It continues by critically assessing the rules that create the “mechanism for cooperation between Member States, and between Member States and the Commission, with regard to foreign direct investments likely to affect security or public order”. The chapter closes with a brief summary and outlook.
The CELIS Institute is an independent non-profit, non-partisan research enterprise dedicated to promoting better regulation of foreign investments in the context of security, public order, and competitiveness. It produces expert analysis and fosters a continuous trusting dialogue between policymakers, the investment community, and academics. The CELIS Institute is the leading forum for studying and debating investment screening policy.