The Week Nº22

22-26 April 2024

IN-DEPTH:

Competitiveness through democracy: a critical juncture in the European Union Nuno Albuquerque Matos

Profi Credit Polska (C-582/21) – Equivalence as an opportunity for introspection Paul Dermine

Light on the horizon for transnational GDPR enforcement: the EP breathes life into the proposed procedural regulation Emilia Fronczak

Reflections on the Signature of EU International Agreements and the Court of Justice’s Judgment in Case C -551/21, Commission v Council Gesa Kübek

Discharge of the claims deriving from public law in European Union insolvency law. Case C-687/21 Rogelio and Julieta v Agencia Estatal de la Administración Tributaria Remigijus Jokubauskas

SYMPOSIUM ON CLIMATE PROTECTION AS A EUROPEAN FUNDAMENTAL RIGHT UNDER THE ECHR AND BEYOND

Verein KlimaSeniorinnen Schweiz and others vs. Switzerland: paving the way for climate litigation in Europe Bas van Bockel

Breaking Down Climate Litigation Justice in Europe: The ECtHR’s ruling on Duarte Agostinho and Others v. Portugal and 32 Other Member States

Carolina Ramalho dos Santos and Erriketi Tla da Silva

COMPETITION CORNER: SYMPOSIUM ON COMPETITION LAW AND REGULATION

The Transformation of the Electricity Market Design within the Economic and Legal Context of Competition Law Analysis

Melani Dumancic

Competition law and regulation: what tool and when?

Bernd Meyring and Dzhuliia Lypalo

THE LONG READ:

The Legislative Proposal of the Commission to Strengthen FDI Screening: Rising from the Ashes of Regulation 2019/452 Najibullah Zamani

HIGHLIGHTS OF THE WEEK

IN-DEPT H

Competitiveness

European Union

through democracy: a critical juncture in the

Nuno Albuquerque Matos

On April 15-16, La Hulpe, Belgium held the Conference on the European Pillar of Social Rights where, among many other speakers, Mario Draghi delivered a speech on the future of EU’s competitiveness.

In his remarks, Draghi highlighted that ‘[t]he key issue is not that competitiveness is a flawed concept. It is that Europe has had the wrong focus’. The former ECB President proceeded arguing that ‘[w]e have turned inwards, seeing our competitors as ourselves, even in sectors like defence and energy where we have profound common interests. At the same time, we have not looked outwards enough: with a positive trade balance, after all we did not see our external competitiveness as a serious policy question’.

Regarding the international environment on competitiveness, Draghi argued that in a benign context, ‘we trusted in the global level playing field and the rules-based international order, expecting that others would do the same. But now the world is changing rapidly, and it has caught us by surprise’. Crucially, ‘other regions are no longer playing by the rules and are actively devising policies to enhance their competitive position’ and the EU’s response ‘has been constrained because our organisation, decision-making and financing are designed for “the world of yesterday” – pre-Covid, pre-Ukraine, preconflagration in the Middle East, pre return of great power rivalry’.

Therefore, the Draghi, who is preparing a report on the bloc’s competitiveness for the European Commission, due to come out at the end of June, has revealed a glimpse of what may come, given that a European Union that is fit for today’s and tomorrow’s world yearns for ‘radical change, because that is what is needed’.

In this speech, the former ECB President is essentially exposing a critical juncture where the EU finds itself, one where the Member States must choose between technocracy or democracy. Looking back at inception of the Union, its fundamental axiological underpinning was to protect different countries from themselves and maintain peace on the continent. European integration was, above all, a project between different countries. This explains the use of extensive Treaty provisions, most notably on competition and State aid law and, more recently, on economic governance. What these rules have in common is that they intended to regulate inter-State relations within a common framework.

In contrast, by stating that the EU has turned inwards Draghi is implicitly acknowledging what Professor von Bogdandy had already hinted at in the beginning of the century, when he argued that the Euro was a driving force for the realisation of a political union and, perhaps, a new community. The acknowledgment that the EU needs to turn outwards signals not only that its internal project has broadly achieved its objectives but also that the EU

has deeply changed, in the sense that it is currently more than just a community of countries or Member States: turning outwards signals increasing internal unity and the need to present itself in the international community as one political body.

Therefore, the EU needs radical change not just to remain competitive but, most importantly, to mirror the sociological, political changes and economic challenges of the 21st century. In a way, the pandemic, the war in Ukraine and the Middle East as well as the return of great power rivalry are all part of the same event: they present an existential threat to the EU, either to its internal cohesion or international relevance. Interestingly, comparative examples teach us that these are defining moments for other unions, where political cohesion emerges and endures. However, presenting itself as one political body in the international arena implies a different methodology of governance. Indeed, such a change cannot be underpinned by the technocratic paradigm of inter-State relations because, ultimately, as a Union with federal features, the EU cannot be subject to its Member States, as it has a direct responsibility vis-à-vis its citizens. Importantly, as Habermas teaches, EU citizens hold a double capacity in the exercise of constituent power, both as citizens of their Member States and as citizens of the Union. Therefore, the division of sovereignty would not treat Member States and the EU as different subjects, but as two capacities of the same subject (ie the citizens in their legitimating role of different democratic levels). Article 311 TFEU states that the Union shall provide itself with the means necessary to attain its objectives and carry through its policies. The definition of which own resources are at the disposal of the Union is a competence of Member States in the Council. It is possible to take a critical view of this situation and consider that this institutional architecture and its dynamic are not in balance. Indeed, why do European citizens elect representatives to the European Parliament (‘EP’) if this institution has no significant competence on revenue matters, as national parliaments do regarding national budgets? Notably, the EP only holds consultation competence prior to the decision on own resources (Article 311 (3) TFEU) and consent competence regarding the Multiannual Financial Framework (Article 312 (2) TFEU), the two main pillars of EU finances that broadly define the annual budget, where the EP does share power with the Council (Article 314 TFEU).

Importantly, the source of income and source of authority/legitimacy are two essential components that need to be considered in tandem. When both are aligned, as they were in the EU’s earlier period and since 1989 until present, budgetary stability emerges and endures. However, the consequence for matching source of income and authority in Member States is that consensus is difficult to reach both on the quantitative and qualitative streams of the budget.

In this vein, the EU is overly dependent on Member States for revenue, which also shapes the nature of the expenditure, which is overly focused on the individual concerns of certain Member States. Consequently, the organisation, decision-making and, most importantly, its financing and expenditure needs to be reformed in a way that connects European citizens with the Union but also connects citizens between themselves, in a process that can be designated as the ‘horizontalisation’ of the Union. This is the strategic orientation that should drive the ‘radical change’ mentioned by Draghi, and should be implemented by reforming the nature of revenues and expenditure at the EU level.

Regarding the former, Union direct taxation of its citizens should be considered as a less imperfect alternative to the status quo as it would recognise the already changed nature of the EU and the existence of a (rapidly) developing EU demos. Again, examples of other federations are instructive. The introduction of direct taxes prompts increased political participation, thereby creating the conditions to bridge the mindset of understanding the EU as a framework of governance between different Member States (the inward dimension, as mentioned).

There is no reason why Article 311 TFEU should not be considered as a valid Treaty basis concerning the financing of the EU, namely for levying general or specific EU taxes. ‘Own resources’ is indeed a concept indeterminate enough to encompass a range of revenue of a very distinct nature, be it national contributions or taxes. Therefore, the problem is not with the concept itself but with the elasticity we allow ourselves in its interpretation. Although this provision has been interpreted restrictively since inception, that does not mean that the legal basis does not exist. It merely begs the question of whether we would conduct an extensive interpretation of it. In fact, there is no provision in the Treaties (explicitly or implicitly) forbidding direct taxes on citizens or mandating EU own resources to be mainly composed of Member States’ contributions. Currently, it is up to the Council to make this choice.

Stronger financial conditions in the EU budget should also enable a change in EU expenditure, as the EU budget traditionally focuses on redistributive policies, mostly agriculture and cohesion. Although these policies may deliver some EU-wide benefits, they are increasingly misaligned with current societal needs, as highlighted by Draghi. In fact, the CAP and cohesion are policies that resemble political priorities developed within the framework of the EEC Treaty. However, it is important that there is a match between the nature of the funding and the nature of expenses. As a result, funds directly accruing from EU citizens should prompt investment not in ensuring an equivalent standard of public services in Member States, but to deliver EU public goods that no single Member State is able to achieve, most notably in the international arena.

Nuno Albuquerque Matos is a PhD Candidate at Universidade Católica Portuguesa (Global School of Law), and was a PhD visitor at the Maastricht Centre for European Law, the Max Planck Institute for Comparative Public Law and International Law and the European University Institute.

Profi Credit Polska (C-582/21) – Equivalence as an opportunity for introspection

Paul Dermine

Profi Credit Polska (C-582/21) is not just another case about consumer protection and the interpretation of the Unfair Contract Terms Directive 93/13. In its ruling, the Grand Chamber was called to further explore the impact of EU law on national res judicata, and the interpretation of national extraordinary remedies which allow for the reopening of proceedings. It gave the Court the opportunity to clarify the interplay between EU judicial protection and national procedural autonomy, and the scope of the related principles of equivalence, effectiveness and consistent interpretation. More fundamentally, this case offered the Court a rare moment of introspection, as it brought it to examine the equivalence of its preliminary rulings on interpretation under Article 267 TFEU with decisions of constitutional courts, and to assess its own proximity with national constitutional jurisdictions.

The case originates from a loan agreement concluded between FY, a consumer, and a credit undertaking, Profi Credit Polska. The loan was secured by a promissory note, on the basis of which the lender could subsequently sue for payment in case of default. Under Polish law, the note suffices, and the lender seeking an order for payment does not need to attach the loan agreement itself. As FY was defaulting, Profi Credit Polska sued before the District Court of Warsaw. FY failed to appear, and a default judgment was delivered, ordering FY to repay its debt, without any examination of the loan agreement and the potential unfairness of its terms. No objection was lodged, and the ruling became res judicata. A bit more than a year later, FY requested the reopening of the proceedings, which was denied by the District Court. Such rejection was appealed before the Regional Court of Warsaw, the referring court in the case.

FY’s request was based on recent caselaw of the Court of Justice, most notably in Profi Credit Polska I (C-176/17), in which the Court had ruled that Polish procedural rules, and the inability of Polish judges to examine ex officio loan agreements and the presence of unfair terms, were incompatible with Directive 93/13. Two grounds for reopening were considered. On the one hand, Article 4011 of the Polish Code of Civil Procedure, under which proceedings may be reopened if a decision of the Polish Constitutional Court has invalidated as unconstitutional the provision of national law (or a specific interpretation thereof) on which the initial judgement was based. On the other, Article 401(2) of the same Code, which allows reopening when a party has been ‘deprived of the opportunity to take action on account of a breach of the law’. Each ground gave rise to questions from the referring court. The first question asked in substance if the principle of equivalence required an extensive interpretation of Article 4011, also including preliminary rulings on interpretation of the Court of Justice. The second question sought to determine if the omission to examine ex officio the unfairness of contractual terms was to be considered, under Article 401(2), as a deprivation of a party’s ability to act.

The Court’s answer to the second question, on which I’ll be brief, broadly follows the direction proposed by AG Emiliou in his Opinion (previously analysed here). The Court essentially deferred back to the national judge, recalling the principle of consistent interpretation and the inherent limit of contra legem, and insisting that the Polish judge alone has jurisdiction to determine if Article 401(2) of its Code can be interpreted as covering situations where a judge fails to examine ex officio the presence of unfair terms in a consumer credit agreement. At the same time, the Court also insisted that should the conclusion of the referring court be negative, the principle of effectiveness requires that another remedy is made available to the consumer to guarantee her rights under Directive 93/13, either in the proceedings for the enforcement of the initial judgement, or in separate subsequent proceedings.

The Court’s answer to the first question, on which I want to focus, was too marked by a great deal of caution and deference. Although it left the final determination to the referring court, the Court considered that rulings of a constitutional court declaring a legal provision, or a certain interpretation thereof, unconstitutional are not equivalent to preliminary rulings of the Court of Justice on interpretation. As a consequence, EU law does not require that a provision of national law enabling the reopening of proceedings in case of the former, be extended by analogy to the latter. The Court’s prudence seems to have been partly motivated by the importance of the principle of res judicata for the stability of the law and social relations and for the sound administration of justice.

The Court’s caution also appears very clearly in its equivalence analysis which sought to assess the similarity of the two types of decisions in light of, following a well-established formula, ‘their respective purpose, cause and essential characteristics’. Two elements were central in the Court’s assessment: function and effect. The function of the Polish constitutional court is to pass judgement on the constitutionality of a provision of national law or of a certain interpretation of such provision. Rulings of unconstitutionality are final and erga omnes and directly deprive said provision or interpretation of its binding force and remove it from the legal order. They also deprive past judgements based on such provision or interpretation of their legal basis, therefore justifying an extraordinary remedy and the possibility to reopen proceedings. By contrast, the purpose of preliminary rulings on interpretation is to enable the Court to provide binding interpretations of EU law. Of decisive importance for the Court is the dialogic and cooperative essence of the preliminary ruling procedure established by Article 267 TFEU (as clearly reaffirmed in Consorzio Management), and the clear separation of functions it implies. Preliminary rulings on interpretation are limited to EU law and are not self-sufficient, as the effects they produce in national legal orders lack immediacy and depend on the subsequent intervention of the national judge, who is sole responsible for interpreting national law, for assessing the incompatibility with EU law of the national provision at stake, and for drawing the consequence from such assessment (consistent interpretation, disapplication, …).

The approach of the Court is overall fairly balanced, reasonable and cautious. While its role and position in the EU legal order is, in many respects, increasingly close to that of constitutional courts in national legal orders, its answer to the first question is certainly in line with the foundations of the preliminary ruling procedure, and the respective responsibilities the Court of Justice and national judges are entrusted with under Article 267 TFEU.

Interestingly, the Court’s rejection of equivalence is purely principled, whereas AG Emiliou, while supporting a similar conclusion, had adopted a more practical stance in his Opinion, based on legal certainty, and the possibility to anticipate the effects produced by preliminary rulings at the national level. One might moreover wonder if such approach always truly matches the reality of the Court’s case law. The line between mere interpretation and application is a thin one. The Court’s jurisprudence is, in various fields, increasingly factual, and the effects its preliminary rulings on interpretation are to produce at the national level are often more immediate and foreseeable than it seems. This might allegedly not be enough to make them equivalent to constitutional courts’ rulings… for now?

Paul Dermine is Professor of EU Law at the Université libre de Bruxelles.

SUGGESTED CITATION: Dermine, P.; “Profi Credit Polska (C-582/21) – Equivalence as an opportunity for introspection”, EU Law Live, 21/04/2024,

Light on the horizon for transnational GDPR enforcement: the EP breathes life into the proposed procedural regulation

by Emilia Fronczak

Last Wednesday, 10 April, the European Parliament adopted its negotiating position on the proposed GDPR procedural regulation. While, for the time being, the file will not move much further until after the EP elections in June, the position now taken at first reading on the LIBE committee report constitutes an important impetus, poised to transform the Commission’s timid and unbalanced proposal into something useful. By coming up with a negotiating position before the elections, the outgoing Parliament has prevented the file from potential oblivion in case a possibly less data protection friendly new assembly should pursue other priorities.

After having been severely criticised by data protection activists and thoroughly reviewed by the EDPB/EDPS, the Commission proposal received a major shake-up in MEP Lagodinsky’s draft committee report, now in essence approved by the EP plenary. In a nutshell, the EP seeks to spur effective enforcement through greater transparency and expediency of the procedures, equal procedural rights, a possible EDPB involvement and the availability of judicial remedies at all stages. The EP also seeks to further clarify the interaction of common and national procedural rules and suggests promoting ex officio procedures while better framing the use of amicable settlements. These very laudable suggestions are certainly not flawless. Conceptually, it appears regrettable that the EP has not further contained the place of national procedural laws where the issues at stake could well be solved uniformly in the proposed Regulation itself. The EP also shuns uniformity by seeking to make the Commission’s stellar proposal of a single complaint form an optional ‘template’. Nevertheless, the EP has sent a very strong signal in favor of a badly needed effective GDPR enforcement.

Subject matter and scope: It’s a hybrid

First things first – what exactly would the Regulation apply to? As highlighted by EDPB and EDPS, the concept of ‘cross-border enforcement’ underlying the Commission proposal lacked a definition. Instead of replacing it, as they suggest, with the term ‘cross-border processing’ as defined in Article 4(23) GDPR , the EP wants the Regulation to apply in toto whenever supervisory authorities of more than one Member State are indeed involved, while Article 26(b), a newly proposed provision on judicial remedies, would also apply to cases before a supervisory authority of a single Member State [corresponding to the single State affectation under Article 56(2) GDPR]. Accordingly, Recital 2(a) of the procedural Regulation would specify that it does not apply when a party lodges a complaint directly with a lead supervisory authority in another Member State. This reflects a defendable, yet by no means compulsory, interpretation of the outer limits of the harmonisation competence under Article 16 TFEU to be used for adopting the procedural regulation. As the Commission states in the proposal’s explanatory memorandum, the scope of the harmonised procedural rules is rather a question of proportionality.

On the same token, one may disagree with the EP’s embrace of the Commission’s choice to lay down only some ‘additional’ procedural rules governing ‘certain elements of the cooperation procedure’ – others depending on national procedural laws subject to minimum common standards. While such overt procedural hybridisation produces – and maintains – unnecessary complication, it is not excluded that the proposed right for parties ‘to have their case handled impartially and fairly, and to be treated equally, even if they are before different supervisory authorities in different jurisdictions (“fair procedure”)’ will eventually lead, by means of judicial interpretation, to a more or less harmonised procedural standard.

What’s wrong with the complaint form ?

The EP unfortunately does not like the Commission’s idea to introduce an exclusive complaint form. As explained in the draft committee report, the form should not be mandatory, as many complainants will not initially know if a case is cross-country or not. A mandatory form may unduly limit access to authorities. Instead, minimum information should be introduced. In the EP negotiating position one now reads that a complaint subject to the Regulation shall provide the information required in the template, as set out in the Annex. The information can be provided by any means the authority accepts, including by not using the template [Article 3(1)].

Transparency and equal procedural rights

The EP correctly insists on the right of all parties to equal and procedural treatment regardless of where their complaint was lodged; their right to be heard before any measure is taken that would adversely affect them; and their right to procedural transparency, including access to a joint case file. The latter would constitute a major improvement in terms of transparency and ease of procedure: a dedicated electronic file that is managed by the lead supervisory authority and in which all relevant information, in particular documents, submissions, memos and other information regarding a case (including all evidence, both inculpatory and exculpatory) are stored and made remotely accessible to supervisory authorities concerned and parties to the case. Their access may only be limited at the request of a party to protect their legally recognised rights or the rights of others, or in the public interest.

The EP also suggests fixing the Commission’s unequal implementation of the right to be heard. All parties are thus to be heard before any measure is taken that would adversely affect them. The lead supervisory authority shall inform and hear the parties at appropriate stages of the procedure, in order to allow them to effectively express their views on all factual findings and legal conclusions made by the lead supervisory authority.

Clear deadlines to speed up procedures

The EP wants to tighten the deadlines already included in the proposal and to introduce a number of new ones (See Articles 3, 5, 8, 9, 10, 16 and 22). There would be a time limit of two weeks for a supervisory authority to acknowledge that it has received a complaint and declare it admissible or inadmissible. Then, the authority would have three weeks to determine if the case is a cross-border one, and which authority should be the lead authority.

Draft decisions would be delivered within nine months of receiving the complaint, outside of certain exceptional situations.

Amicable settlements framed, ex-officio procedures promoted

Since the Commission proposal could indeed be read as allowing for presumed amicable settlements, the EP insists that they require the explicit consent of the parties. Also, an amicable settlement should not prevent a supervisory authority from starting an own-initiative investigation into the matter [Article 5 (1)(d)] and other supervisory authorities can even request the lead authority to start such an investigation [Article 5(a)].

‘Procedural determinations’ – Will the EDPB take the lead?

To avoid procedural break-downs, the EP wants to enable the EDPB to stir the ship out of troubled waters. As spelled out in the re-worded Recital 15, this means that when there is a divergence in opinion regarding the scope or procedural issues of a case, the supervisory authorities should raise the matter quickly with the Board, which should make the necessary ‘procedural determinations’. While the EP seeks to ground this power in Article 66 GDPR, the term itself is new and could allow for a greater and more decisive involvement of the EDPB before it is too late. According to the EP, the lead supervisory authority or one of the supervisory authorities concerned should also be able to request an urgent binding decision of the Board without a request under Articles 61 or 62 GDPR having been made. As could be predicted, the enhanced implication of the EDPB in the course of cross-border enforcement is already being flagged by some as eroding the OSS mechanism. Considering, however, that the powers suggested by the EP would merely prepone the board’s intervention for the purpose of settling disputes, they appear well justified.

Judicial remedies

The EP negotiating mandate finally addresses a major shortcoming of the Commission proposal by insisting on judicial remedies whenever a supervisory authority does not use its powers or does not otherwise take necessary action required by the GDPR. In addition, the parties should have a right to take action against the lead supervisory authority in case of inaction or overly long procedures. Article 4(1)(a) would provide that the handling of a complaint shall always lead to a legally binding decision that is subject to an effective legal remedy under Article 78 GDPR . Moreover, to ensure that there is no enforcement gap, the parties to the case and organisations under Article 80(1) GDPR should be empowered to seek a judicial remedy in the public interest if a supervisory authority does not comply with a decision of the Board and if they consider that the rights of a data subject under the GDPR have been infringed as a result of the processing

What’s next?

The four months granted under Rule 60 of the EP’s rules of procedure for trilogue negotiations obviously lay the file’s fate with the hands of the newly elected assembly. Given the trade associations’ strong opposition to the EP amendments, it may have to deal with a major pushback from the Council. Data protection politics at its best.

Emilia Fronczak LL.M, is a senior associate in the Luxembourg office of an international law firm, where she advises in particular on data protection, IP/IT and employment and EU law.

Reflections on the Signature of EU International Agreements and the Court of Justice’s Judgment in Case C-551/21, Commission v Council

Gesa Kübek

In yet another dispute between the Commission and the Council about the conduct of EU external relations, the Court of Justice held in Case C-551/21 that it is for the former to ensure the actual signing of international agreements. In doing so, it ended a long-standing practice of the Council to designate the signatory of EU international agreements. In future practice, EU international agreements will be signed by an EU representative and not by a representative to the EU from the Member State holding the Council Presidency. This arguably strengthens the EU’s independent international visibility.

This Op-Ed will examine the law and practice of signing EU international agreements in light of Case C-551/21 and briefly reflect on the judgment’s wider relevance.

1. EU Law and Past Practice

EU law does not explicitly designate the person representing the EU for the purpose of signing international agreements. Article 17(1) TEU stipulates that the Commission, as an institution, ‘shall ensure the Union’s external representation’. At the same time, Article 218(5) TFEU leaves the ‘last word’ about the adoption of an internal decision on the signing of an international agreement on behalf of the EU with the Council. In past practice, the Council had consistently used its last word to authorise its President to designate the person empowered to sign international agreements on behalf of the EU. Usually, the Council President empowered the Permanent Representative of the Member State holding the Council Presidency. Only in selected cases, the Council President had authorised a member of the Commission, in addition to himself and/or a Member State representative to the EU, to sign EU international agreements (eg, EU trade agreements were generally co-signed by the Presidents of the Council and the Commission, who were sometimes joined by the Permanent Representative of the Member State holding the Council Presidency).

The Council had followed its established practice also for the signature of the new Implementing Protocol to the Fisheries Partnership Agreement between the Gabonese Republic and the European Community (hereafter ‘the Protocol’), which formed the background of the dispute to Case C-551/21. The proposal for a signature decision foresaw the signing of the Protocol by a ‘person indicated by the Commission’. In the explanatory memorandum, the Commission had signalled its legal view that ‘officials designated by the Commission have sole competence for signing an agreement between the EU and a third country’. The Council signalled its opposing legal views by changing the Commission’s proposal. The final signature decision stipulated that the ‘President of the Council is

hereby authorised to designate the person(s) empowered to sign the Protocol on behalf of the Union’. The Council President designated the Permanent Representative of Portugal to the EU as the signatory and the Protocol was signed on 29 June 2021. Against that background, the Commission had brought an action for annulment proceeding before the Court of Justice, arguing that by authorising its own President to designate the person empowered to sign the Protocol, the Council had breached Article 17(1) TEU, in conjuncture with Articles 13(1),(2) TEU (principle of institutional balance) and Article 4(3) TEU (principle of sincere cooperation).

2. International Law Dimension

International law does not expressly designate the person responsible for signing international agreements. Pursuant to Article 7(1)(a) VCLT, a person is considered as representing a State, including for the purpose of authenticating a treaty or expressing consent to be bound (Articles 10 and 11 VCLT), when that person produces appropriate full powers. For states, some people are automatically considered as representatives by the purpose of their function without the need to produce full powers (e.g. Heads of State, Heads of Government or Ministers for Foreign Affairs). As Advocate General Kokott noted, the VCLTIO does not include a provision governing a power of representation by virtue of functions. Indeed, as the case of the EU exemplifies, it is much more difficult to categorically identify persons representing International Organisations by virtue of their functions due to their complex and unique governing structures. In practice, the Council Secretariat generally establishes an instrument of full powers for the person designated to sign an international agreement on behalf of the EU in accordance with Articles 2(1)(c) and 7(1)(a) VCLT. The question underpinning Case C-551/21 was whether it is for the Council or the Commission to designate that person.

3. Arguments of the Parties

The Commission advanced a literal interpretation of the VCLT, highlighting the fact that the person designated with full powers in accordance with Article 7(1) VCLT has the status of a ‘representative’. The act of signing would accordingly fall within the Commission’s prerogative to represent the EU externally in accordance with Art. 17(1) TEU (paras. 44-45). The Commission thus drew a clear distinction between the internal decisionmaking process leading to a Council decision on the signature of an agreement and the actual signing of that agreement. The Commission further claimed that by empowering the permanent representative of the Member State exercising the Council Presidency, the Council had acted ‘as if it, itself, its rotating presidency, and its Secretariat General still ensured the external representation of the European Union’ (para. 48). This would counter key innovations brought about by the Lisbon Treaty. The latter not only empowered the Commission to represent the EU externally but also discontinued the rotation of the Presidency for foreign affairs with a view to improving the international visibility and recognition of the EU (para. 49).

Conversely, the Council and the intervening Member States contended that the purpose of the actual signing of international agreements is ‘not merely to communicate the European Union’s position but to create legal effects in international law’ (para. 56). The signature act would thus not classify as an act of external representation

within the meaning of Art. 17(1) TEU. Instead, the signing act would be a ‘legal and procedural continuum’ of the Council’s competence to take a decision on the signing of international agreements on behalf of the EU in accordance with Article 218(5) TFEU (para. 57). The Council further claimed that even if the signature act were to be viewed as an act of external representation, Article 218(5) TFEU would constitute ‘one of the other cases provided for in the Treaties’ referred to in Article 17(1) TEU and thus an exception to the Commission’s power to ensure the external representation of the EU (para. 59).

It is noteworthy that the High Representative intervened in support of the Commission. The Court of Justice held, in a separate order, that the High Representative is legally distinct from the EEAS and ‘must be equated with the “bodies, offices and agencies of the Union” for the purpose of applying the second paragraph of Article 40 of the Statute of the Court of Justice of the European Union’ (para. 14). In accordance with Art. 40 of the Statute, the High Representative also established an ‘interest in the result of the case’. The conclusions drawn by the Court in Case C-551/21 will namely apply by analogy to the prerogatives he holds under Article 27(2) TEU in the field of the CFSP.

4. The Court of Justice’s Conclusion

The Court classified the decision on the signing of an international agreement made in accordance with Art. 218(5) TFEU and the actual signing of that agreement as two different acts. Whereas the former requires a policy assessment to be made in light of the EU’s external relations objectives and interests within the meaning of Article 16(1) TEU, the latter takes place after that policy assessment has already been made. The actual signature reflects a declaration of intent made by the EU to a third party and hence qualifies as an act of external representation (para. 71; see also point 50 of the AG Opinion). Following a literal interpretation of Articles 2(1)(c) and 7(1)(a) VCLT, the Court concluded that the signing of an international agreement on behalf of the EU falls ‘within the scope, from the perspective of customary international law, of the latter’s representation’ and thus within the prerogatives of the Commission under Article 17(1) TEU (paras. 76-77).

The Court was not persuaded by the Council’s claim that Article 218(5) TFEU was one of the ‘other cases provided for in the Treaties’ referred to in Article 17(1) TEU. Unlike Article 218(3) TFEU, which explicitly grants the Council the power to nominate the EU negotiator, Article 218(5) TFEU does not authorise the Council to designate the person signing international agreements on behalf of the EU (para. 79). It concluded that ‘in a situation where the Council has authorised the signing of an international agreement which, as in the present case, is not within the scope of the CFSP (…) it is for the Commission, pursuant to the sixth sentence of Article 17(1) TEU, to ensure the actual signing of that agreement’ (para 81). As a result, the Court annulled part of the signature decision while upholding its full legal effects.

5. Legal and Political Relevance

From a legal perspective, the judgment is relevant because it clarifies several finer points in EU external relations law, including the concept of external representation, the scope of Article 17(1) TEU, and its delineation

from Art. 218(5) TFEU. It also clarified finer points in EU procedural law, especially with regard to the High Representative’s capacity to intervene in proceedings independently from the EEAS.

Aside from the legal nitty gritty, the judgment is arguably of broader political relevance. In the context of interinstitutional competence quarrels, the question ‘why does it matter’ legitimately arises. After all, as the Court itself noted, ‘whoever the person is who is designated to be the signatory pursuant to the rules of EU law, the legal effects of the signing (…) will be the same and will be binding on the European Union in its capacity as a subject of international law’ (para. 70). Yet, one should arguably not underestimate the relevance of a signature act for the EU’s international visibility. It is famously difficult to determine whom to call to talk to Europe. That image is not helped if third countries are faced with periodically changing representatives of Member States to the EU – something the Lisbon Treaty intended to forestall. The outcome of Case C-551/21 will in all likelihood imply that third states will be confronted with a representative from one of the EU’s own institutions. This will increase the consistency of the EU’s external representation and may increase its visibility and perception as an international actor that is distinct from its Member States.

Gesa Kübek is Assistant Professor in European Law at the University of Groningen. She is the author of EU Trade and Investment Treaty-Making Post-Lisbon: Moving Beyond Mixity (Hart Publishing, forthcoming May 2024).

Discharge

of the claims deriving from public law in European Union insolvency law. Case C-687/21

Rogelio and Julieta v Agencia Estatal de la Administración Tributaria

Remigijus Jokubauskas

Discharge of debt procedure plays an important role in the market economy and provides a possibility for insolvent debtors to live without the burden of debt and start economic activities anew after the discharge is granted.

The Directive 2019/1023 on restructuring and insolvency (hereinafter – ‘the Directive’) establishes the main rules for the discharge of debt procedure for insolvent entrepreneurs aiming to provide a fresh start (a second chance). The essence of the discharge procedure is to provide a relief to a debtor from debt incurred prior to the commencement of the discharge procedure. However, the crucial question arises from which debts a debtor should be discharged after the discharge procedure. Usually, the national legislators establish the list of nondischargeable debts which a debtor shall keep paying even after the discharge procedure.

The position of the European Union policymakers on the question of non-dischargeable debts is debatable. Pursuant to Recital 81 of the Directive, where there is a duly justified reason under national law, it could be appropriate to limit the possibility of discharge for certain categories of debt. It should be possible for the Member States to exclude secured debts from eligibility for discharge only up to the value of the collateral as determined by national law, while the rest of the debt should be treated as unsecured debt. Member States should be able to exclude further categories of debt when duly justified. Article 23(4) of the Directive establishes that Member States may exclude specific categories of debt from discharge of debt, or restrict access to discharge of debt or lay down a longer discharge period where such exclusions, restrictions or longer periods are duly justified and provides the list of such debts.The list of non-dischargeable debts in the discharge procedure is policy-driven (Ch. G Paulus, R. Dammann, European Preventive Restructuring: An Article-by-Article Commentary, p. 266; G. McCormack, The European Restructuring Directive (Edward Elgar, 2021), p. 212) and reflects the policymaker’s approach towards the performance of certain obligations and economic and social goals.

However, reading Recital 81 and Article 23(4) of the Directive raise questions: is the list of non-dischargeable debts in the said article exhaustive or not? If the list is non-exhaustive, are the Member States free to decide from which debts a debtor shall not be discharged? Does European Union law establish any requirements related to the debts from which a debtor should not be discharged? Also, should a debtor be discharged from claims deriving from public law, such as tax claims?

On 11 April 2024 the Court of Justice of the European Union (hereinafter – ‘the Court of Justice’ or ‘the Court’) rendered an important judgment which sheds some light on these questions in case C-687/22 Rogelio and Julieta v Agencia Estatal de la Administración Tributaria (hereinafter – ‘the judgment’). The crux matter in this judgment was related to the implementation of the Directive into the national laws and most importantly the interpretation of the list of non-dischargeable debts under Article 23(4) of the Directive which is briefly assessed in this analysis.

By resorting to textual interpretation, the Court of Justice found that the list of non-dischargeable debts in Article 23(4) of the Directive is non-exhaustive and thus the Member States have the power to exclude specific categories of debt other than those listed in that provision from discharge of debt in duly justified cases (para. 38-39). Turning to the more complicated question whether the claims deriving from public law can be discharged the Court of Justice held that the European Union policymakers sought to leave the Member States a certain discretion so that they may, when transposing that directive into their national law, take account of the local economic situation and legal structures (para. 40). However, it also provided two important conditions on for the legitimate establishment of the exceptions to non-dischargeable debts, namely that such exceptions shall be i) established in the national law or from the procedure which led to them and ii) pursue a legitimate public interest (para. 42).

A few conclusions may be drawn from this judgment.

First, the Court of Justice supported the view that the Directive grants discretion for the Member States to choose how the Directive should be implemented in the national law. The Directive is indeed designed to provide discretion about how the national insolvency laws should achieve the goals set out in this act. Interestingly, the Court of Justice suggested that such choices should be baised also on the local economic situation and legal structures, meaning that the national insolvency laws and even the economic conditions in the Member State may determine which debts are non-dischargeable ones.

Second, the acceptance of the claims deriving from public law, such as tax claims in this case, shows that the in principle such position is compatible with the goals of the Directive, namely because there is nothing in the text and preparatory documents of this act what would show the contrary. Nevertheless, the Court of Justice did not provide any guidance on the following questions: from which exact claims deriving from public law a debtor may be discharged and what does a public claim actually mean? Does it include also penalties imposed by governmental institutions, such as tax authorities or monetary penalties from administrative offences or does only deal with the tax claims?

Thirdly, the Court of Justice, though clarified the application of Article 23(4) of the Directive, missed the chance to provide guidelines, namely on how to justify establishment of non-dischargeable debt in the national legislation and what requirement it should meet. The Court of Justice simply reiterated the text of the said article and found that debts other than those listed may be excluded if duly justified under national law. However, the question remains: how should one interpret the requirement of duly justification? One may argue that dull justification in the article may be coupled with the requirement of protection of public interest and mentioned

in the judgment. Nevertheless, the vagueness of the concept of public interest also leads to a debate what interest should be considered when dealing with non-dischargeable debts in the discharge procedure.

The judgment is indeed relevant and provides some guidance on the interpretation of the list of non-dischargeable debts found in Article 23(4) of the Directive. The judgment may also serve as the basis for the pending case C-20/23 where Court of Justice is also asked to provide guidance on how the list of non-dischargeable debts should be compatible with the fundamental freedoms under European Union law and interpretation Article 23(4) of the Directive.

Remigijus Jokubauskas is attorney at a law firm and associate professor at Mykolas Romeris University (Lithuania). He teaches national and international insolvency law and is an author of numerous articles and books on insolvency and private international law.

SYMPOSIUM

SYMPOSIUM ON CLIMATE PROTECTION AS A EUROPEAN FUNDAMENTAL RIGHT UNDER THE ECHR AND BEYOND

Verein KlimaSeniorinnen Schweiz and others vs. Switzerland: paving the way for climate litigation in Europe

Bas van Bockel

This contribution is part of the EU Law Live Symposium on Climate Protection as a European Fundamental Right under the ECHR and beyond. The first Op-Ed was authored by Carolina Ramalho dos Santos and Erriketi Tla da Silva. More Op-Eds on this topic will be published soon on EU Law Live.

Climate change affects us all. The heavy burden of complying with international obligations to reduce emissions however only falls on those nations that actually take the necessary steps to reduce their greenhouse gas (‘GHG’) emissions. Those often involve deep cuts in production and consumption, changes to a society’s way of life, and economic hardship. In game theory this type of problem is a form of what is known as a ‘prisoners dilemma’: the ‘players’ (in this case: nations and large corporations) have a choice to ‘cooperate’ (take the necessary steps to reduce emissions), or to ‘defect’ (the opposite). Game theory predicts that an optimal outcome (which, in this case, is a reduction of emissions sufficient to prevent or mitigate the most disastrous consequences of climate change) is only achieved if all the players cooperate, but that defection is a more attractive short-term strategy because it serves the self-interest of each individual player. If we translate this to the context of climate change, the theory would suggest that nations and corporations that defect would do so in the hope of benefiting economically from sustained or increased emissions, while freeriding on any positive climate effects resulting from emission cuts realised by the others. The grim prediction from game theory is that the outcome will be ‘suboptimal’.

Game theory offers several strategies to change the overall negative outcome of the prisoner’s dilemma. Amongst other things, laws and legal institutions (the ‘Rule of Law’) can force the individual players to adjust their strategy, which changes the outcome. On the international level however, institutions capable of taking effective enforcement measures against sovereign nations who fail to protect the climate and the environment are largely lacking. It is therefore unsurprising that rigorous enforcement of environmental and climate laws is the exception, rather than the norm amongst nations.

Climate litigation relies on robust national judicial institutions as well as on the strength of the Rule of Law to enforce climate obligations against governments and large corporations. According to different sources, several thousands of climate cases have by now been brought before courts in over 70 jurisdictions, although often with modest success. The Dutch Urgenda and Milieudefensie cases have been notable exceptions, and have been proposed as a ‘template’ for climate litigation in other jurisdictions. Due to the particular nature of the Dutch constitution which grants primacy to instruments of international law, the legal arguments in those cases turn

more on interpretations of provisions of the European Convention on Human Rights (‘ECHR’) than on Dutch law.

In Urgenda, consecutive Dutch courts held that that the Dutch government had failed to comply with positive obligations arising out of Articles 2 (right to life) and 8 (respect for private and family life) of the ECHR. The ECHR lacks any provision expressly guaranteeing a ‘right to a healthy environment’, and the Dutch courts could only base their interpretation of Articles 2 and 8 ECHR on less than a handful of environmental judgments by the ECtHR, none of which concerned climate change. The judgments of the ECtHR in the first three climate cases that reached that court (Carême vs. France, application no. 7189/21; Duarte Agostinho and Others vs. Portugal and 32 others, application no. 7189/21; and Verein KlimaSeniorinnen Schweiz and others vs. Switzerland, application no. 7189/21) were therefore eagerly awaited by many. It was however widely expected that all three would be found inadmissible, as none of the applicants fulfilled the stringent victim-status criteria under Article 34 ECHR. That provision requires a victim to be ‘personally and directly affected’, which criterium has been further developed in the case law in a restrictive manner. Because climate change affects us all, and the worst of the damage it causes is still in the future, either no-one or everyone is a climate ‘victim’ under the ECHR, both outcomes being equally undesirable. Having regard in particular to the ‘important role the Aarhus Convention assigns to non-governmental organisations’ the Court finds a solution to this dilemma by creating an actio popularis under the ECHR. It declares the NGO KlimaSeniorinnen Schweiz admissible in its application, and not the individual members. The other two applications were inadmissible for non-exhaustion of national remedies (Duarte Agostinho and Others) and because the application lacked victim status (Carême vs. France).

The judgment in KlimaSeniorinnen Schweiz and others vs. Switzerland is of fundamental importance primarily because in that judgment, the Grand Chamber confirmed that the failure on the part of states to take the necessary measures in the face of climate change affects the rights contained in Article 8 ECHR (right to respect for private and family life).

As already explained in the Op-Ed by Carolina Ramalho dos Santos and Erriketi Tla da Silva in this Symposium, the KlimaSeniorinnen case concerned four individual members of a Swiss NGO who addressed formal requests to a number of Swiss federal bodies and agencies and a federal department in order ‘to compel the authorities, in the interest of safeguarding their lives and health, to take all necessary measures required by the Constitution and the Convention to prevent the increase of the global temperature.’ When their actions were dismissed, the applicants unsuccessfully launched consecutive appeals before an administrative court and finally before the Federal Supreme Court. These actions were dismissed by the courts on grounds of admissibility, without any consideration of the merits.

In the proceedings before the ECtHR, the Swiss NGO and its members argued that Switzerland was not doing enough to reduce emissions of greenhouse gasses, but instead was ‘pursuing a strategy of purchasing emission reductions abroad and taking them into account in the national emission reduction target for 2030’. The Swiss authorities are thus finding ways to postpone the measures that are actually necessary to reduce emissions.

The Grand Chamber agrees with the NGO. In reaching its findings, the judgment goes into the importance and urgency of taking the necessary measures in the face of the climate crisis at some length. Consecutive reports by the Intergovernmental Panel on Climate Change (‘IPCC’) as well as numerous decisions, resolutions, reports issued by other international organisations and bodies are cited, and the ECtHR notes that the scientific evidence is not contested by the defendant governments.

By now, a growing number of international organisations and bodies have recognised environmental and climaterelated human rights obligations arising out of the right to life, and the right to privacy and family life. Climate harm however raises ‘unprecedented issues’ under the ECHR which complicate the task that the Grand Chamber is faced with. In this regard the Court makes a fundamental distinction between climate harm on the one hand, and environmental harm on the other. In environmental cases, a ‘particular harm can be (…) identified’, and there is a clear causal link between that source and groups of individuals suffering from that harm. Climate change does not derive from any single, specific source, and the chains of causality are highly complex. For all these and other reasons, the Grand Chamber concludes that the ‘key characteristics and circumstances’ in climate cases are significantly different from those in environmental cases. That it may prove futile for a single state to take adequate measures if other states are not doing the same is not a valid argument, as far as the Grand Chamber is concerned: ‘each State has its own share of responsibilities to take measures to tackle climate change and (…) taking those measures is determined by the State’s own capabilities rather than by any specific action (or omission) of any other State’.

Due to the special nature and the gravity of climate harm, the State’s margin of appreciation is reduced in so far as it concerns not the specific measures chosen, but ‘the State’s commitment to the necessity of combating climate change and its adverse effects, and the setting of the requisite aims and objectives in this respect’. The Grand Chamber furthermore takes the important step of recognising that the ECHR entails positive obligations for States ‘to adopt, and to effectively apply in practice, regulations and measures capable of mitigating the existing and potentially irreversible, future effects of climate change’. What this means concretely is that the States must put ‘in place the necessary regulations and measures aimed at preventing an increase in GHG concentrations in the Earth’s atmosphere and a rise in global average temperature beyond levels capable of producing serious and irreversible adverse effects on human rights, notably the right to private and family life and home under Article 8 of the Convention.’ Even more specifically, the Court rules that States are under an obligation to achieve carbon neutrality within the next three decades. All of these obligations derive from Article 8 in this case, but it is sufficiently clear from the judgment (which addresses the link between the two provisions), that the same obligations derive from Article 2 ECHR.

There is of course much more in the judgment, and many details deserve separate and thorough consideration, as it will become apparent through the different contributions to this Symposium. The key takeaway for now is that the Grand Chamber took great steps (and overcame great hurdles) in addressing the issue of climate change under the ECHR. No doubt the judgment could have gone even further, and from a climate perspective the

question remains whether this will be enough, and whether it is not too late. Some points in the judgment, in particular the sharp distinction between environmental cases and climate cases, raise doubts and concerns.

There is strong consensus that stringent measures need to be taken everywhere in the world if we want to stand a chance of preventing the worst consequences of climate change. Consensus however is not enough. Game theory helps us to better understand the forces that pull states in the opposite direction. The Rule of Law is one of only a handful of strategies to overcome the collective prisoners’ dilemma we are grappling with. This judgment is one vital step on a long road towards full climate Rule of Law, and many other legal procedures must follow. There is only so much one human rights court can do in the face of the ‘super-wicked’ problem of climate change, but the Grand Chamber surely did not disappoint this time around.

Bas van Bockel is Research Fellow at the Catholic University of Leuven.

Breaking Down Climate Litigation Justice in Europe: The ECtHR’s ruling on Duarte Agostinho and Others v. Portugal and 32 Other Member States

Carolina Ramalho dos Santos and Erriketi Tla da Silva

This contribution is part of the EU Law Live Symposium on Climate Protection as a European Fundamental Right under the ECHR and beyond. More Op-Eds on this topic will be published soon on EU Law Live.

Introduction

On 9 April 2024 the European Court of Human Rights (ECtHR) rendered its judgement on Case Duarte Agostinho and others against Portugal and 32 others (Application no. 39371/20). The judgement was highly anticipated being one of the first climate litigation cases brought before the ECtHR. The potential recognition of victimhood for climate cases before the ECtHR would send a strong message to the Court of Justice and could invite it to rethink its strict admissibility conditions (Article 263 para. 4 TFEU and Case 25-62, Plaumann).

The ECtHR concluded that the case was inadmissible since the applicants did not exhaust domestic remedies. However, on the same date the ECtHR issued its groundbreaking judgement in Verein KlimaSeniorinnen Schweiz and Others, recognising that failure to undertake adequate measures to address climate change is a violation of the European Convention of Human Rights (ECHR).

Background of the Duarte Agostinho case

Six young Portuguese nationals lodged an application with the ECtHR on 7 September 2020. They claimed that lack of sufficient action by the 33 respondent States, including all the EU Member States to effectively deal with the existing and anticipated impacts of climate change such as rising temperatures and increased wildfires were in breach of Articles 2 (right to life), 3 (prohibition of inhuman and degrading treatment), 8 (right to respect for private and family life) and 14 (prohibition of discrimination) of the ECHR.

Citing various international agreements including the Paris Agreement and the UN Convention on the Rights of the Child, as well as expert reports, they argued that Portugal and 32 other countries shared responsibility for not adequately addressing climate change. They emphasised that they were currently facing risks due to climate change, which were expected to escalate significantly throughout their lifetimes and that their generation was disproportionately affected by climate change compared to previous ones.

The judgement of the European Court of Human Rights

The ECtHR unanimously concluded that the application was inadmissible because there were no legal grounds for extraterritorial jurisdiction, thus concluding that territorial jurisdiction was established for Portugal and that the applicants had not exhausted the domestic remedies available in the Portuguese legal order. Consequently, it did not rule on the merits of the application. Nevertheless, the ECtHR took the opportunity to give some meaningful contributions in relation to the existence of a causal link between harmful activities for the environment and the impact they have on the rights included in the ECHR.

Extraterritorial jurisdiction

According to the Court, the applicants, as Portuguese residents, were under Portuguese jurisdiction. Therefore, under Article 1 of the ECHR, Portugal was obliged to answer for the infringements resulting from its governmental inaction if it was considered to harm the rights protected in the Convention.

The applicants relied on the fact that the States’emmissions and/or their lack of action to limit or reduce them produced effects outside their territories, i.e., ‘exceptional circumstances’, and on the ‘special features’ of climate change (e.g., multilateral dimension, the consequences of surpassing the 1.5 º C limit and the States’ responsibility to comply with such limit, etc.) to ask the Court to establish the other respondent States’ extraterritorial jurisdiction First, the Court found that States were ultimately responsible for controlling public and private activities in their territories that produced greenhouse gas (GHG) emissions. Most importantly, the ECtHR concluded that there was a causal relationship between public and private activities based on a state’s territory that produced GHG emissions and the detrimental impact on the rights and freedoms of people living outside the borders of that State. Plus, the Court recognised that climate change posed an existential threat to humanity, distinguishing it from other cause-and-effect situations.

Nevertheless, the ECtHR concluded that such considerations were not sufficient to establish extraterritorial jurisdiction in this case.

In this regard the applicants argued that jurisdiction should be built upon the content of the States’ positive obligations, i.e. to take action on climate change which harmed the applicants’ rights under the ECHR. The Court held that the States’ positive obligations regarding climate change was not a robust enough ground to claim that the State had jurisdiction over people residing outside of its territory. Additionally, the Court found that the Portuguese applicants’ EU citizenship was not a reason to establish a jurisdictional link between them and the EU respondent Member States.

Regarding the argument presented by the applicants which stated that extraterritorial jurisdiction should be established to facilitate broader litigation, the ECtHR stated that the Convention was not built to provide general protection of the environment by and of itself, and that international legal mechanisms and national legislation were the tools to handle such matters. Furthermore, the Court explained that such argument would constitute

a departure from the protection system established by the Convention. Still in this aspect, the applicants took the opportunity to state that litigating the case only in Portugal would be of limited efficacy and this was the only legal avenue where they could hold the respondent States responsible for their inaction on climate change. Nevertheless, the ECtHR responded by stating that jurisdiction and responsibility are issues that should be assessed separately and that while admitting that climate change is a global concern it also noted that each State has its responsibilities regarding governmental action to fight the phenomenon.

Finally, the Court denied the applicants’ proposed extension of the member States’ extraterritorial jurisdiction on the basis of the ‘control over the applicants’ Convention interests’ in the field of climate change. According to the ECtHR if such extension was upheld it would lead to an unsound level of uncertainty for the States, given that accepting such a theory could mean an unlimited expansion of States extraterritorial jurisdiction under the Convention. In practice, this could mean that States would have global responsibility and that, consequently, they would have an unlimited expansion of their responsibilities under the Convention towards anyone in the world. This would thus change the Convention’s core purpose to a global climate-change treaty.

Following the considerations above, the Court ruled that the application in the Duarte Agostinho case was to be considered inadmissible pursuant to Article 35 (3) and (4) of the Convention.

Exhaustion of domestic remedies

The Court found that the applicants had not exhausted the domestic remedies available in Portugal and declared the application inadmissible. Indeed, the applicants had not pursued any legal recourse in Portugal regarding their grievances even though there is an enforceable right to a healthy and ecologically balanced environment in Portugal’s Constitution (Article 66).

Additionally, Section 7(1) of Law no. 19/2014 (the Environmental Policy Framework) ensures everyone’s right to full and effective protection of their environmental rights, while Section 7(2) provides for the possibility of instituting actio popularis actions to request public authorities to take specific actions, including environmental protection and quality of life measures. Furthermore, Law no. 98/2021, of 31 December 2021 (Portuguese Climate Framework Law) identifies climate change as an emergency and grants everyone the right of protection against its impacts, empowering individuals to demand compliance from public and private entities with their obligations in climate-related matters. Moreover, Portuguese domestic law provides for non-contractual civil liability actions against the State, as well as for administrative remedies, allowing individuals to petition administrative courts to compel the administration to take measures regarding issues, including the environment and quality of life.

In this regard, and as the Court correctly notes, climate litigation is already a reality in Portugal. On November 26, 2023, Último Recurso, Quercus and Sciaena, three Portuguese NGOs launched civil proceedings pursuant to Law no. 83/95 (Portuguese Class Action Law) against the Government for not taking the sufficient steps to implement the Portuguese Climate Framework Law.Amongst the claims, the NGOs allege that the State was negligent regarding the promulgation of the Law, referring to the lack of adoption of a carbon budget, a climate action portal, a national energy and climate plan and sectoral and mitigation plans. Nevertheless, the defendant

has not been summoned by the judge responsible for the case, when it should have been on April 4, 2024, thus delaying the legal proceedings. Due to the first instance court’s inability to summon the defendant, a complaint has been submitted to the Superior Judiciary Council. However, the judge dismissed the action on the grounds that the claim brought was unintelligible, meaning that the NGOs will now appeal the decision to the Portuguese Supreme Court.

Considering the comprehensive system of remedies available in the national legal order, the Court found no special reasons to exempt the applicants from the requirement to exhaust domestic remedies. Had the applicants complied with that condition, national courts could assess the compatibility of the challenged national measures with the Convention. The ECtHR reminded that its role is subsidiary to that of national courts, and the applicants’ failure to engage with domestic remedies hindered the national courts’ ability to fulfil their fundamental role in the Convention protection system.

The ECtHR rejected the argument of the applicants that the Court should rule on climate change issues before national courts for standing against the notion of subsidiarity which underpins the Convention.

Some reflections on the case

The findings of the Court in the Duarte Agostinho case were expected, since the non-exhaustion of domestic remedies is incontestable, and it would be impossible to completely disregard the letter of the ECHR (Article 35 ECHR).

While the Duarte Agostinho case was lost on procedural grounds, the outcome of the Verein KlimaSeniorinnen Schweiz and Otherscase is a beacon of hope since the Court declared that government inaction directly affects human rights under the ECHR. Thus, the applicants in the Duarte Agostinho case can use this precedent before the Portuguese courts. The ECtHR’s judgement in VereinKlimaSeniorinnen Schweiz and Others is even more promising for the future of climate litigation in light of the potential accession of the EU to the ECHR following the conclusion of the negotiations at technical level in March 2023. In the event of EU’s accession, this judgement opens the door to a possible climate case against the EU for not taking sufficient actions to address climate change.

In Duarte Agostinho, the ECtHR came to the groundbreaking conclusion that there is a direct link between public and private activities within a state’s territory that produced GHG emissions and the adverse effects on the rights of individuals residing beyond that state’s borders. Nevertheless, the outcome of the case highlights the notable constraints of the ECtHR in safeguarding individual rights against climate change impacts. The ECtHR’s jurisdiction primarily operates within territorial boundaries, but the devastating effects of climate change transcend such confines. It is worth noting that other international courts such as the from the InterAmerican Court of Human Rights in its advisory opinion OC-23/17 on human rights and the environment, have broadened the interpretation of extraterritorial jurisdiction, accepting a factual link between the conduct and the extraterritorial violation of human rights when a state exercises effective control over activities within its territory, leading to human rights violations beyond its borders, and has the capacity to prevent such harm.

The outcomes of these two cases shows that while the ECtHR remains loyal to its strict admissibility conditions, its doors are not as hermetically closed as it is currently the case in the CJEU. It would be interesting to observe whether these cases will trigger any changes in the approach of the CJEU, which made it clear in Carvalho (Case C-565/19 P para 70) that the Plaumann formula is inextricably tied with the Treaties and can only be modified through Treaty reform.

Can the openness of the ECtHR motivate the CJEU to depart from the Plaumann precedent and reform its interpretation of direct and individual concern or would the welcoming attitude of the ECtHR be an ‘excuse’ to maintain the status quo, since climate litigants have now access to an international court?

Given that the admissibility conditions for both Courts were not historically designed to address collective issues such as climate change, perhaps it is time to rethink admissibility drawing inspiration from other international courts so that they can encompass the community-wide nature of environmental claims.

Conclusion

To conclude, the outcome of the case was expected as the admissibility requirements were incontestably not fulfilled. Nevertheless, the acknowledgment of a connection between activities conducted within the territory of a state and result to GHG emissions and their negative impacts on the rights of individuals living outside that state’s borders together with the groundbreaking conclusions of the Verein KlimaSeniorinnen Schweiz and Others case show that ECtHR is becoming a promising forum for climate change litigation. However, the refusal of the ECtHR to create a new test for extraterritorial jurisdiction demonstrates the serious limitations of the ECHR as a tool to provide effective judicial protection in climate cases that by their nature do not respect territorial barriers.

Carolina Ramalho dos Santos is a trainee lawyer at a Portuguese law firm. She holds an LL.M. in European Legal Studies from the College of Europe and currently follows postgraduate studies in International Environmental Law at the University of London.

Erriketi Tla da Silva is a PhD candidate in Wageningen University and an Academic Assistant at the College of Europe. She holds an LL.M. in European Legal Studies from the College of Europe as well as an LL.M. in Environmental Law from the National and Kapodistrian University of Athens. She is a qualified lawyer, registered in the Athens Bar Association.

SYMPOSIUM

COMPETITION CORNER:

SYMPOSIUM ON COMPETITION LAW AND REGULATION

The Transformation of the Electricity Market Design within the Economic and Legal Context of Competition Law Analysis

Melani Dumancic

I. Introduction

The application of competition law in regulated network industries has always been a highly debated topic. While nobody would contest anymore that competition law is applicable in regulated markets, various problems related to the concurrent application of regulation and competition law remain unsolved.

Electricity markets are no strangers to regulation, having been liberalised almost 30 years ago and regulated on a European level with four liberalisation packages. In the beginning, the focus lay on creating an internal electricity market by introducing competition to the markets (Electricity Directive 96/92/EG, recital 2). Over time, additional objectives were added and significantly shaped European electricity policy, most notably the development of an integrated and competitive European electricity market, the rollout of environmentally friendly electricity generation, and security of supply (Article 194 TFEU). Nowadays, the electricity sector is undergoing a profound transformation towards renewable electricity generation, decentralised markets with more players, and better interconnected, Europe-wide systems. In addition to that, security of supply and affordable and stable electricity prices have been hot topics since the energy crisis. This has prompted the European Commission to propose a regulation reforming the EU electricity market design, on which the Council and the Parliament have reached a provisional agreement

It is undisputed that the regulatory framework, as a significant part of the market structure, has to be taken into account in competition law assessment. The changes brought about by the profound transformation of electricity markets will therefore inevitably also change the application of competition law in electricity markets. Against this background, I explore how the regulatory changes to the electricity markets and the objectives pursued with them may affect the determination of a restriction of competition by object under Article 101(1) TFEU.

II. New electricity market design and its objectives

The new electricity market design will be a Regulation changing and adding provisions within the Electricity Regulation 2019/943 and the Electricity Directive 2019/944. Its main aims are to make electricity prices less dependent on volatile fossil fuel prices, accelerate the rollout of renewable energies, shield consumers from price spikes, and improve consumer protection. This is done through various measures, including, inter alia, the protection from disconnections for vulnerable customers or the right to participate in energy sharing for households and small and medium enterprises. Additionally, renewable electricity generation is supported by adding provisions

for power purchase agreements (the electricity produced by renewable energy is sold in a bilateral contract between the producer and large consumers, usually for a longer period) and support schemes involving contracts for difference. Measures to integrate and secure liquidity in the day ahead, intraday, and forward markets are introduced. Member States shall also report on their needs for flexibility and establish targets for flexibility, that is not based on fossil fuels, focusing on the contributions by demand response and energy storage.

Achieving those regulatory objectives will not only require support from the EU and Member States but also initiatives from the undertakings active in the electricity market. High investment costs and the required know-how will encourage cooperation. Competing undertakings operating wind and solar power plants might, for example, decide to jointly sell their produced electricity (“the joint selling agreement”). Several electricity producers could also cooperate to build a new battery storage facility, allowing for more flexibility in the grid and simultaneously generating economies of scale. These are just two examples of the endless possibilities for cooperation within the new electricity market design. When examining the conformity of these agreements with Article 101(1) TFEU and whether they are restrictive of competition by object, the current changes to the electricity markets and the pursued regulatory objectives play an important role in the analysis.

III. The legal test for identifying restrictions by object

Article 101(1) TFEU does not prohibit just any agreement between undertakings, but only those that have as their object or effect the prevention, restriction, or distortion of competition within the internal market. If it is established that an agreement has the object of restricting competition, the actual anticompetitive effects of the agreement do not have to be examined.

The relevant criterion to finding a restriction by object is that the agreement in itself presents a sufficient degree of harm to competition, in other words, when it has no plausible purpose other than the restriction of competition. This involves examining the content of the agreement, its objectives, and the economic and legal context of which it forms a part (Super Bock Bebidas C-211/22, paragraphs 31–35). It is also important to keep in mind that the form of an agreement in itself is not enough to establish an anticompetitive object. For example, a pricefixing agreement might not be restrictive by object when examined in light of the economic and legal context. However, in respect to agreements, which have traditionally been regarded as particularly serious infringements of competition law, such as price fixing or market sharing agreements, the analysis of the economic and legal context may be limited to what is strictly necessary in order to establish the existence of an object restriction (Toshiba C-373/14 P, paragraphs 28–29).

When examining the economic and legal context of an agreement, regard must be given to the nature of the goods or services affected and the actual conditions of the functioning and structure of the market or markets in question (Generics C-307/18, paragraph 68). Within the economic and legal context, the procompetitive effects of the agreement can also be taken into account. These can reverse the classification as a restriction by object only if they are demonstrated, relevant, specifically related to the agreement concerned, and sufficiently significant to

justify a reasonable doubt as to whether the agreement causes a sufficient degree of harm to competition (EDP C-331/21, paragraph 104).

IV. Regulatory measures and objectives within the legal and economic context

In EDP (C-331/21, paragraph 102), the ECJ held that the anticompetitive object of an agreement may “be borne out by the fact that it occurs in the particular context of market liberalisation, which is similar to the dismantling of significant barriers to entry.” Similar to this, I think the economic and legal context of an agreement should take into account the way the electricity markets are currently changing. Like market liberalisation almost 30 years ago, the changes were prompted by a legislative decision and are being pursued through various regulatory measures. Similarly, the new electricity market design proposes steps to establish an integrated European electricity market and lowers entry barriers for the production of renewable electricity. In a way, the current changes are even more significant, as the landscape of electricity production and consumption is significantly changing with more decentralised production by smaller undertakings and even consumers. The shift from big, conventional power plants to renewable production makes features like grid stability and flexibility even more fundamental for a functioning market. In this regard, a cooperation agreement might be beneficial or detrimental to the achievement of such regulatory objectives and thereby the successful transformation of the electricity markets. The economic and legal context allows for both scenarios to be taken into account. This is illustrated by these examples:

Electricity producers might agree to sell their independently produced electricity exclusively through bilateral agreements without involvement of the electricity exchange. This would take liquidity out of the intraday and day-ahead markets operated by the electricity exchanges. These markets are crucial for the integration and competitiveness of wind and solar power plants because they allow for the balancing of supply and demand shortly before delivery. This might in itself be an anticompetitive object, as the entry of new competitors in the form of renewable electricity producers is hindered. In light of the regulatory framework, which emphasises the significance of liquid intraday and day-ahead markets (for example, see provisional agreement, recitals 14, 15 and Article 19a), this anticompetitive object should carry even more weight. Thus, the impediment of a regulatory objective may be used to support the finding of an object restriction.

The same logic can apply the other way around. The joint selling agreement can have an anticompetitive object when, for example, the selling price is agreed upon. Apart from the considerations in the Horizontal Guidelines (paragraphs 222 et seqq.), the promoted regulatory objectives should be taken into account when determining the object of the agreement. Such a cooperation can further the successful implementation of renewable energies. The joint sale of electricity produced by wind and solar power plants permits the operators to balance the unpredictable production more easily and saves costs. This allows for easier entry into the electricity production market for producers of renewable electricity. Additionally, balanced production of renewable electricity supports security of supply by enhancing grid safety. Increasing flexibility to the electricity markets is also a specific objective of the new electricity market design (for example, see provisional agreement, recital 47). These positive effects, however, are only eligible for consideration if they meet the preconditions outlined above for procompetitive effects: they must

be demonstrated, relevant, specifically related to the agreement concerned, and sufficiently significant to justify a reasonable doubt. In most cases, such considerations will, however, be better placed as efficiency justifications.

The European Commission has in the past taken regulatory objectives into account when assessing potentially anticompetitive behaviour in electricity markets: for example, liquidity on electricity exchanges and security of supply in OPCOM (AT.39984, paragraph 178), the creation of an integrated internal electricity market in DE/ DK Interconnector (AT.40461, paragraph 66), security of supply in German Electricity Wholesale/Balancing Market (COMP/39.388, 39.389, paragraph 34), and Jahrhundertvertrag (IV/33.997, paragraph 31).

V. Conclusion

These examples show that pursuing regulatory objectives and competitive markets are not mutually exclusive but can complement each other. This does not, however, imply that an anticompetitive agreement can evade competition law enforcement on the grounds that it serves a regulatory objective alone. The pursuit or the impediment of regulatory objectives can only be taken into account as additional arguments underlining the antior procompetitive object of an agreement. This outlines one approach to deal with the concurrent application of competition law and regulation.

Mag.a Melani Dumancic, LL.M. (King’s College London) works as a research and teaching assistant at the University of Vienna. She is currently writing her doctoral thesis in the field of competition law in electricity markets.

SUGGESTED CITATION: Dumancic, M.; “The Transformation of the Electricity Market Design within the Economic and Legal Context of Competition Law Analysis”, EU Law Live, 24/04/2024, https://eulawlive.com/competition-corner/the-transformation-of-the-electricity-market-designwithin-the-economic-and-legal-context-of-competition-law-analysis-by-melani-dumancic/

Competition law and regulation: what tool and when?

Bernd Meyring and Dzhuliia Lypalo

Is overregulation suffocating innovation and competitiveness in the EU? Or is regulation necessary to keep markets open and efficient to deliver for consumers? The debate is neither new nor specific to the EU. The polarisation may appeal to politicians who want to get votes by being seen to fight bureaucracy. It may also appeal to companies on either side of the debate. For some, regulation is a tool to get a slice of the cake that others have prepared through investment and risk-taking. Others will stress how they invest trusting that the fruit will be for them to collect, and regulation removes or “chills” that very incentive.

As is often the case, reality is far more nuanced. With the benefit of hindsight, advocates for regulation can point to some obvious success stories. Who would want to go back to the markets for telecom services or energy before they were broken open and regulated to inject competition where possible? Who would argue against driving down our energy bills or allowing for new services that quickly became crucial in today’s world? Few would suggest that state-run entities or unregulated monopolies would have been as effective in achieving the same outcome without regulation. Who really thinks it was right to bail out banks with taxpayers’ money in 2008, when the same institutions had reaped the rewards of high-risk ventures for years?

At the same time, there is no doubt that Europe is struggling with its competitiveness. This is emerging already now as a key attention point for the forthcoming Commission. There are more and more voices that see (over) regulation as toxic for innovation and productivity. The administrative burdens of compliance are heavy for startups without the resources to navigate the muddy waters of EU regulation. “They’ll all go to the US” is how some stakeholders have described the impact of the AI act on European start-ups in this area. As companies determine their strategies to comply with the DMA, it is becoming evident that some may have to modify or even terminate certain (even if marginal) services for European consumers.

The discourse on state intervention has also been changing over time. The EU’s approach has its unique features, where competition rules in the Treaties underpin an internal market that was to be created. In line with that objective, the initial enforcement was formalistic and focused on removing barriers to trade in all forms. The approach was not adverse to state intervention as such but rather to barriers to trade between Member States and distortions of competition that it created or incentivised. The late 1990s and early 2000s saw more confidence in markets. The EU used a combination of competition enforcement and regulation to break energy markets open. Many thought that markets would deal with any inefficiencies, and targeted competition law enforcement would only cover have to deal with exceptions.

The tremendous value and innovation that unregulated tech platforms began to deliver during that time seemed to confirm the benefits of this laissez-faire attitude. Leading academics blew into the same horn. Intervention to shape market structures was portrayed as an error of the past. But the pendulum now seems to be swinging back. The EU now equipped itself to intervene early to preserve pluralistic market models and to avoid “tipping” where network effects may lead to natural monopolies. Whether the large platforms deliver for consumers has not been the main focus in this debate. Rather, ensuring plurality and keeping markets open has become an objective as such.

As explained by Hancher and Larouche. Nor is competition the only objective that regulation aims to achieve. It is perfectly conceivable for regulation to strike a balance between efficiency, economic consumer welfare, and other objectives that legislation may pursue.

Regulation can create competition

Network industries with their natural monopolies show the most evident tension between competition and regulation. Telecoms, energy, postal services, and transport have been progressively liberalised and regulated at the EU level. These infrastructures were largely built by states or through state intervention. There was often no room for free market competition before liberalisation. Replacing a state monopoly by a private, profit-maximising company was not possible without regulation. Regulation has been instrumental in removing barriers to entry, ensuring access to the infrastructure, and facilitating competition where possible.

In the energy sector, competition law was initially used to reinforce liberalisation. Antitrust actions forced unbundling through (capacity) divestiture by companies like E.On and RWE. At the same time, it was an EU directive (2009/72) that mandated separation of energy supply from transmission networks (unbundling) for operators in all Member States. The combination effectively created competition in previously monopolised markets and attracted market entry to ensure that the new opportunities would be used quickly. Crucially, competition law remains applicable where markets are regulated. The Court of Justice confirmed this in Deutsche Telekom (C280/08 P) in 2010. Accordingly, regulation and competition law complement each other. The Commission (or sectoral regulators) can combine both tools or use the one they consider to be more efficient, . Cases like Google Shopping, Google Android, Amazon and Apple (music streaming) straddle DMA and dominance aspects, and the EC is using both tools to shape markets and the key players’ conduct. US law famously restricts the scope of antitrust law in sectors subject to regulation. The Supreme Court excluded such an application of antitrust law in the regulated telecoms sector based on a cost-benefit assessment in Trinko in 2003.

Where markets are are open and well-functioning, the need for regulation may decline . The regulation of telecoms (Directive 2018/1972) is explicitly premised upon a progressive reduction of ex ante regulation as competition in the market develops. This assertion has been in place since the first Access Directive in 2002, but the regulation is still in place and there is nothing to indicate that it would disappear any time soon.

Regulation that supplements competition

The objectives of competition law enforcement are another contentious topic. There is a tendency to broaden its scope to topics like sustainability, data privacy and many others, as controversial as that may be. This can work to a certain degree where the efficiency and innovation that competition can promote serve other ancillary purposes. Innovation competition can accelerate the development of technologies that achieve environmental benefits. Quality competition may promote choice for consumers in relation to how their data is used. However, competition authorities lack tools to make an enforcement choice where various policy objectives and the objective to promote efficiency diverge. They will not clear a merger to monopoly between tobacco producers because their monopoly rents might help reducing tobacco consumption and thereby promote health objectives.

This shows how competition law alone will often not achieve outcomes that are desired to promote broader policy objectives. For instance, competition in the market is not always sufficient to ensure appropriate data and consumer protection. Regulation can legitimately define the level playing field on which effective competition can deliver the desired results.

Such regulation may well be inspired by learnings from competition enforcement investigations. For instance, many DMA obligations are based on various EU and national cases. Contrary to the sectoral regulation, the DMA does not include any premise of reducing the ex-ante rules once the markets are “contestable and fair”. Another example is the regulation on interchange fees in the financial services industry (Regulation 2015/751). Following the EC investigation into payment service providers, the EU introduced caps for interchange fees. The 2015 regulation expands the outcome initially reached through antitrust enforcement. It defines uniform requirements for transactions and caps the interchange fee for all providers. It aims to impose a balance between fair compensation for payment service providers and reasonable costs for merchants and consumers, an area where unregulated competition was seen to have failed. In fact, antitrust intervention has various pitfalls including lengthy and potentially fragmented enforcement. For instance, MasterCard investigation lasted more than 10 years, while it took the co-legislators less than 2 years to adopt the regulation following the initial EC proposal.

The recently proposed Standard Essential Patents (“SEPs”) Regulation is another example. Its main objective is to address inefficient licensing of SEPs, in particular by providing sufficient transparency with regard to FRAND terms and their determination through a mandatory out-of-court procedure. Until now, at the EU level, these licensing conditions were only subject to rules developed through the case law on Art. 102 TFEU, including Huawei v ZTE (C-170/13). While the Court provided guidance on legality of a dominant firm seeking an IP injunction and whether seeking such an injunction could amount to an abuse under Art. 102 TFEU, the meaning of FRAND under EU law was – and still is – widely debated. The draft Regulation provides the first EU framework for SEPs registration and licensing. When adopted, it will also establish a procedural framework for FRAND determination through expert out-of-court procedure. The FRAND determination would have to be initiated by the SEP holder or implementer before initiating respective court proceedings in the EU (or it could be initiated by one of the parties voluntarily to resolve disputes related to FRAND terms and conditions). This

would restrict the right of the SEP holder to seek an injunction before a national court for up to 9 months. At the same time, the regulation would merely facilitate negotiations and not bind the parties after the initial 9 months. Either party could also still seek a limited financial injunction during this period.

Externalities

Generally, competition fosters innovation and economic efficiency. But it does not consider externalities. Regulation may be necessary to address these negative externalities. “Race to the bottom” competition may occur where companies resort to risk-taking and cost-cutting measures that compromise quality, safety, or ethical standards in the pursuit of maintaining a competitive edge. Getting the balance right is difficult: any such regulation will prevent short-term efficiencies. It will also prevent competition through conduct that may initially benefit consumers. The legislator replaces the “invisible hand of the market” and decides which investment and conduct is to be promoted.

The Global financial crisis is a good example. It illustrates how free competition created incentives for banks to take risk in order to outperform their competitors. They had no reason to consider the potential wider implications for the economy. This ultimately threatened the stability of the entire economic system. The experience led to strengthening regulation on risks that banks are allowed to take. At the same time, regulation created a safety net for the economy to allow the preservation of critical services without having to use public funds.

The Single Supervisory Mechanism ensures oversight of all active credit institutions. It provides an orderly resolution framework for failing banks and minimises costs for the economy. This regulation applies equally to the institutions with market power and smaller players in the market, as long as they play a role for the stability of financial markets.

Conclusion

There is no “either or” relationship between competition law and regulation. These tools complement each other in numerous ways, and striking the right balance is a difficult task. As often, success or failure only become evident in hindsight. There are numerous examples of success, but the concern of overregulation is growing. Compliance with regulation comes at a price. The last twenty years of enforcement have put the focus on an effects-based approach. We know that some effects are easier to identify and measure than others. This may have led to a bias towards short-term price effects to the detriment of other effects that, while more difficult to establish, have a more significant impact, at least longer-term. As we have seen, there is no doubt that regulation must come in where competition can otherwise not function or deliver the desired results. But just as in competition enforcement, regulation must also factor in and weigh the effects to determine the best way – and if even necessary – to intervene. It should only be used where the (economic or other policy) benefits outweigh the unavoidable harm. Impact assessments are rightly part of the legislative process, but they are not held to the same standards as enforcement. There have been too many examples where hindsight shows how the impact assessment was

predictably off the mark. Only where both enforcement and regulation are based on a robust analysis of effects will they complement each other efficiently and deliver the desired result.

Bernd Meyring is a partner and Global Head of Antitrust and Foreign Investment at Linklaters LLP. He is a professor of EU competition law and regulation at the College of Europe in Bruges.

Dzhuliia Lypalo is an associate at Linklaters LLP. She holds an LL.M. in EU law from the College of Europe.

SUGGESTED CITATION: Meyring, B. and Lypalo, D; “Competition law and regulation: what tool and when?”, EU Law Live, 22/04/2024, https:// eulawlive.com/competition-corner/competition-law-and-regulation-what-tool-and-when-by-bernd-meyring-and-dzhuliia-lypalo/

THE LONG READ

The Legislative Proposal of the Commission to Strengthen FDI Screening: Rising from the Ashes of Regulation 2019/452

Najibullah Zamani 1

1. Introduction

After decades of investment liberalisation, the attitude of States towards foreign direct investments (FDI) has changed fundamentally in recent years due to geo-political developments. In the contemporary geo-political environment, States increasingly pursue geopolitical, strategic and security interests through investment policies rather than through political and military policies. Accordingly, States perceive nowadays FDI increasingly as a threat to national interests and security. The Organisation for Economic Cooperation and Development (OECD) noticed that, as a consequence of the increased concerns, more and more countries are adjusting existing FDI screenings mechanisms and adopting new policies in order to safeguard their national interests.2 The European Union (EU) and its Member States have joined the ranks of these countries. To address the concerns voiced by the Members States and the Commission, Regulation 2019/4523 was adopted in March 2019.

Pursuant to Article 15, the Commission must evaluate the functioning and effectiveness of Regulation 2019/452 by 12 October 2023 and every five years thereafter and, if necessary, propose a legislative proposal recommending amendments to the Regulation. Following its evaluation, the Commission announced4 on the 24th of January 2024 the adoption of a legislative proposal5 addressing the shortcomings of Regulation 2019/452 and improving its efficiency.

The aim of this Long-Read is to provide an overview of the debate surrounding Regulation 2019/452, its shortcomings and whether, if so to what extent the proposal of the Commission addresses the identified shortcomings adequately. In order to do so, it is helpful to first of all briefly discuss the concerns with regard to FDI (section 2) and the legal framework established by Regulation 2019/452 to address these concerns (section 3). Then attention will be paid to the shortcomings and possible inefficiencies of Regulation 2019/452 identified

1. Lecturer and PhD Candidate in European and International Economic Law at the public law research institute for State and Law (SteR), Radboud University, Nijmegen. He holds an LL.M degree in Corporate Law and a MSc degree in Corporate Finance.

2. OECD, OECD Research note on current and emerging trends: Acquisition- and ownership- related policies to safeguard essential security interests. New policies to manage new threats 4, https://www.oecd.org/investment/OECD-Acquisition-ownership-policies-securityMay2020.pdf (12 March 2019).

3. Regulation EU No 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for screening of foreign direct investments into the European Union [2019] Official Journal L791/1.

4. Commission, ‘Press release: Commission proposes new initiatives to strengthen economic security’ (24 January 2024).

5. Proposal for a Regulation of the European Parliament and of the Council on the screening of foreign direct investments in the Union and repealing Regulation (EU) 2019/452 of the European Parliament and of the Council, COM(2024)23 final

by the OECD and the European Court of Auditors (ECA) (section 4) and the recommendations made (section 5). The penultimate section will discuss the proposal of the Commission and how it is meant to address the identified shortcomings and inefficiencies of Regulation 2019/452. Finally, the last section will conclude.

2. Concerns leading to the adoption of Regulation 2019/452

Cherished for decades, FDI came increasingly under attack from 2017 onwards. The immediate cause for this changed attitude, concerned a series of Chinese takeovers of EU companies with key technologies. In line with ‘Made in China 2025’, Chinese investors, often backed up by the Chinese government, aimed at taking over EU companies possessing technological knowledge in order to upgrade China’s industry.1 As consequence of these takeovers, the German, Franch and Italian governments sent in February 2017 a letter to the Commission expressing their concerns about the investment policy of the EU.2 The concerns of these Member States were twofold. First of all, the Member States identified a lack of reciprocity meaning that EU investors did not enjoy the same rights in third countries as investors from third countries did enjoy in the EU. EU investors did not have access to certain sectors of the domestic economies of third countries for instance. And when access was provided, EU investors had to operate under more unfavourable conditions than national investors who were often supported through subsidies, which within the legal order of the EU are outlawed by the prohibition of state aid. In addition to a lack of reciprocity, they voiced their concerns about ‘a possible sell-out of European expertise’. In its reflection paper on harnessing globalisation, the Commission acknowledged the concerns of the Member States with regard to ‘[…] foreign investors, notably state-owned enterprises, taking over European companies with key technologies for strategic reasons’.3

The takeover of EU companies holding critical technologies by foreign investors poses concerns for at least two reasons. First of all, foreign investors may enact decisions that result in a decline in the quality or quantity of the products or services provided by the target company. Furthermore, influenced by their governments, foreign investors might repatriate essential assets of the EU companies to their home states, potentially leading to a scenario where the EU and its Member States lose access to crucial goods and services. In the most severe circumstances, these assets could be wielded against the EU and its Member States for geopolitical and strategic purposes.4

1. See for instance J. Wübbeke et al., ‘Made in China 2025: The Making of High-tech Superpower and Consequences for Industrial Countries’ (2016), at 52.

2. Letter of German, French and Italian governments to Commissioner Malmström (February 2017).

3. European Commission, Reflection paper on harnessing globalization (10 May 2017), COM(2017)240 final, at 18.

4. Jens Velten, Screening Foreign Direct Investments in the EU: Political Rationale, Legal Limitations, Legislative Options, Springer, 2022, p. 15. Velten (p. 20-21) identifies yet another concern: the so-called private information concern. Due to the takeover, foreign investors get access to private information such as personal data. The foreign investors may transfer this also its home country.

3. The framework of Regulation 2019/452

In order to address the concerns voiced, Regulation 2019/452 was adopted in March 2019. In its proposal, the Commission noted that even though openness to FDI remains a key principle of the EU, ‘[…] vigorous and appropriate policies to, first, open markets for EU companies in third countries, ensure that everyone plays by the same rules and protect EU investments in third countries, and, second, to protect assets in the EU against takeovers that may be detrimental to the essential interests of the EU or of its Member States are necessary’.5

Regulation 2019/452 is thus meant to achieve two objectives simultaneously: creating a level playing field and protecting the legitimate interests of the EU and its Member States from the negative effects of FDI.6

Regulation 2019/452 contains three main elements, which are discussed extensively in literature.7 Therefore, it suffices here to briefly recall these main elements. The first element concerns the non-exhaustive list of factors which Member States and the Commission can take into account to determine whether security and/or public order is adversely affected by a particular FDI. Secondly, the Regulation provides that certain minimum requirements, which serve as safeguards for foreign investors,8 have to be met by the screening mechanisms that are in place or introduced by the Member States. Finally, the Regulation introduces a cooperation mechanism meant to facilitate the cooperation and information sharing between Member States and between Member States and the Commission regarding FDI which might have adverse cross border effects on security and public order.

Conversely, Regulation 2019/452 does not create an independent EU-wide screening mechanism. Pursuant to Article 1(1), the Regulation only establishes a framework for the screening of FDI on the grounds of security and public order by Member States. Regulation 2019/452 also does not oblige Member States to establish a screening mechanism. Article 3(1) clearly provides that Member States may maintain, amend or adopt mechanisms to screen FDI in their territory. Member States are also not obliged to screen a particular FDI, as indicated by inter alia Article 1(3).9 Finally, even though Member States are required to give due consideration to comments and opinions of other Member States and the Commission, the final screening decision is the sole responsibility of the Member State where the FDI is planned or completed.10

5. European Commission, ‘Welcoming foreign direct investments while protection essential interests’, COM(2017)494 final 5 (13 September 2017).

6. European Commission, ‘Proposal for a Regulation of the European Parliament and of the Council establishing a framework for screening of foreign direct investments into the European Union’ COM(2017)487 final 2 (13 September 2017). See also inter alia recital 8 of Regulation 2019/452; European Commission, ‘Reflection Paper on Harnessing Globalization’, COM (2017)240, 15 (10 May 2017); European Commission, ‘Joint Communication to the European Parliament and the Council – Elements for a new EU strategy on China’, JOIN(2016)30 final (22 June 2016).

7. See e.g. Jens Velten, Screening Foreign Direct Investments in the EU: Political Rationale, Legal Limitations, Legislative Options, Springer, 2022; Steffen Hindelang and Andreas Moberg (Eds.), YSEC Yearbook of Socio-Economic Constitutions 2020: A Common Law on Investment Screening, Springer, 2020; Jacques H.J. Bourgois (Ed.), EU Framework for Foreign Direct Investment Control, Wolters Kluwer, 8.Wolf Zwartkruis and Bas J. de Jong, ‘The EU regulation on screening of foreign direct investment: A game changer?’, European Business Law Review 31, 2020, p. 466.

9. Article 1(3) provides: Nothing in this Regulation shall limit the right of each Member State to decide whether or not to screen a particular foreign direct investment within the framework of this Regulation.

10. See Article 6(9) with regard to FDI that are undergoing screening and Article 7(7) for FDI that is not undergoing screening in the Member State where it is planned or completed. Pursuant to Article 8(1) the Commission can also provide opinions with regard to FDI

4. Shortcomings of Regulation 2019/452

Regulation 2019/452 was recently evaluated by the OECD11 and ECA.12 The objective of both studies was to assess the effectiveness and efficiency of the framework for FDI screening as established by Regulation 2019/452.13 The ECA does not define the notions of ‘effectiveness’ and ‘efficiency’. The OECD does define these terms by stating that for the purpose of the present report, the term ‘effectiveness’ refers ‘[…] to situations where foreign direct investment that likely affects the security or public order of Member States or projects or programs of Union interest is screened and managed’. Efficiency refers according to the OECD ‘[…] to situations where effectiveness is achieved while keeping the administrative burden for investors and other stakeholders proportionate to the policy goals and relevant security or public order concerns’.14

Assessing the effectiveness and efficiency of the framework established by Regulation 2019/452 is important because its ineffectiveness and inefficiency gives rise to several problems. If the framework appears to be ineffective, then that in essence means that FDI transactions are not screened despite the fact that these transactions are capable of adversely affecting the security and/or public order of the Member States and/or of the EU. Similarly, an inefficient framework leads to costly and time-consuming screening procedures which in turn is not in the best interests of the parties to the FDI transactions and the national authorities.15

Both the ECA16 and the OECD17 identified shortcomings which weigh on the effectiveness and efficiency of the framework for FDI screening as established by Regulation 2019/452. At first sight, the identified shortcomings are diverse in nature and relate to both substantive and procedural aspects of Regulation 2019/452. At closer look however, almost all shortcomings identified by the ECA and the OECD weighing on the effectiveness and efficiency of the Regulation are in essence the result of two fundamental choices underlying Regulation 2019/452.

The first issue concerns the fact that, as mentioned above, Regulation 2019/452 does not oblige Member States to put in place a screening mechanism. Accordingly, there are still a number of Member States which do not have a framework for the screening of FDI.18 The most recent data published by the Commission shows that out of that is likely to affect projects or programs of Union interest. In such a case, the Member State were the FDI is planned or completed is required to ‘take utmost account of the Commission’s opinion and provide an explanation to the Commission if its opinion is not followed’. See Article 8(1)(c) and recital 19.

11. OECD, Framework for screening foreign direct investment into the EU: Assessing effectiveness and efficiency (2022), accessible via: The Framework for the screening of foreign direct investment into the Union (oecd.org)

12. ECA, Special report- Screening foreign direct investments into the EU: First steps taken, but significant limitations remain in addressing security and public order effectively (6 December 2023), accessible here

13. ECA Report, point 19 and OECD Report, point 2.

14. OECD Report, point 3.

15. Cf. OECD Report, point 173.

16. ECA Report, points 24-57.

17. OECD Report, points 157-181.

18. This issue was also raised by the ECA and OECD. See ECA Report, point 27 and OECD Report, point 159.

the 27 Member States, six Member States do not have a screening mechanism.19 These six Member States are Bulgaria, Croatia, Cyprus, Greece, Ireland, and Sweden. The absence of a screening mechanism in these Member States is problematic for at least two reasons.20 First of all, without screening mechanisms these Member States are unable to identify and appropriately address risks to their own security and/or public order, risks to other Member States’ security and/or public order and risks related to Union’s security and/or public order, which is the whole raison d’être of Regulation 2019/452. This is especially problematic because countries such as Cyprus, Greece and Ireland are important entry points for foreign capital into the Union.21 Secondly, Member States which do not have a screening mechanism in place, have neither the institutional infrastructure and capacity for nor practical experience in gathering, sharing, requesting and processing information as mentioned in Article 9 Regulation 2019/452. This in turn reduces significantly the effectiveness of the cooperation mechanism because the information requirements of Article 9 are necessary for the proper functioning of the cooperation mechanism. Without such information, Member States and the Commission cannot assess and evaluate appropriately FDI transactions in other Member States.

The second issue concerns the fact that Regulation 2019/452 is, as discussed above, enabling rather than harmonising in nature. As the ECA notes, not harmonising and defining the key provisions and concepts of Regulation 2019/452, has resulted in significant differences between the national screening mechanisms of the Member States. These differences are, inter alia, related to (i) the sectoral scope of the mechanisms, (ii) the definitions of key concepts such as security and public order, (iii) determining the threshold for control, (iv) the applicable timeframes and (v) possible exemptions from screening for certain acquirers.22 These differences in turn reduce significantly the effectiveness and efficiency of Regulation 2019/452 and in particular that of the cooperation mechanism. For instance, different timeframes makes the screening procedure complicated and costly, and therefore inefficient, in cases of multi-jurisdiction FDI. The same holds true for the definition of the notion of FDI: if one Member State considers the acquisition of 10% of the shares to be constituting FDI, whereas another Member States sets the threshold at 25%, then this of course will create ’blind spots’, as the ECA has put it.23

5. Recommendations of the ECA

In its report, the ECA provides four recommendations. The first and most important recommendation is that (a) the Member States must be obliged to establish screening mechanisms, (b) key concepts must be clarified, (c) investments made by foreign investors through subsidiaries in the EU must be covered by the framework and (d) Member States must communicate the outcome of screening decisions. The second recommendation

19. European Commission, List of screening mechanisms notified by Member States (last update 23 January 2024). Accessible via: https:// policy.trade.ec.europa.eu/enforcement-and-protection/investment-screening_en

20. See OECD Report, point 160.

21. OECD Report, point 159.

22. ECA Report, point 33 with a reference to the OECD Report in footnote 18.

23. ECA Report, point 33.

requires that the Commission must assess whether the screening mechanisms of the Member States comply with the minimum requirements as laid down in Article 3 and that Member States must be encouraged to align the applicable criteria, timeframes and processes for the screening of multi-jurisdiction FDI transactions. The third recommendation aims at improving the cooperation mechanism and the Commission’s assessment of FDI transactions that threaten security and/or public order. Quite curiously, the ECA has noticed that some Member States did not block FDI transactions by individuals who were on a sanctions list.24 Accordingly, the ECA recommends to prohibit FDI transactions by foreign investors who are on such lists. While such a recommendation is more than welcome, one can ask why the Member States concerned have not blocked transactions by foreign investors who are on sanctions list. After all, Article 4(2)(b) and (c) Regulation 2019/452 explicitly provide that where foreign investors are involved in activities affecting security or public order in a Member State or whether there is a serious risk that the foreign investor engages in illegal or criminal activities, such a transaction must be screened and eventually blocked. Finally, the last recommendation requires that the Commission improves the quality of the annual reports. In its reply to the ECA report, the Commission has (partially) accepted more or less all recommendations.25

6. The legislative proposal: an improvement?

The legislative proposal of the Commission (hereinafter referred to as the draft Regulation) addresses at first sight both issues mentioned above. On the basis of the draft Regulation, Member States are obliged to establish a screening mechanism as indicated by the word ‘shall’ in Article 3(1).26 The draft Regulation shows also signs of greater harmonisation as indicated by its legal basis. In addition to Article 207 TFEU, Article 114 TFEU is also included as a legal basis which indicates that the draft Regulation will be more harmonising in nature. This is also emphasised by the Commission in the Explanatory Memorandum, where it argued that ‘[…] a higher degree of harmonization at Union level is necessary [and that] therefore Article 114 TFEU is a relevant legal basis for this initiative’’.27 Besides these two points, the draft Regulation contains also other interesting substantive, institutional and procedural novelties. Below the most important aspects will be discussed.

6.1 Substantive aspects of the draft Regulation

The draft Regulation introduces inter alia the following substantive changes.

First of all, Article 1(1) of the draft Regulation provides that it is aimed at establishing a Union framework for the screening of foreign investments whereas the scope of Regulation 2019/452 is limited to the screening of foreign direct investment. 28 The notion of foreign investment is of course broader than the notion of foreign

24. ECA Report, point 50.

25. European Commission, Replies of the European Commission to the European Court of Auditors’ special report, p. 6-9.

26. Article 3(1) Regulation 2019/452 used the word ‘may’ which indicated that there was no obligation on Member States to adopt a screening mechanism.

27. European Commission, Explanatory Memorandum, p. 10.

28. See Article 1(1) Regulation 2019/452.

direct investment as the former encompasses the latter. Pursuant to Article 2(1) of the draft Regulation, foreign investment means a foreign direct investment or an investment within the Union with foreign control, which enables effective participation in the management or control of a Union target. According to Article 2(3) of draft Regulation, an investment within the Union with foreign control means ‘an investment of any kind carried out by a foreign investor through the foreign investor’s subsidiary in the Union, that aims to establish or to maintain lasting and direct links between the foreign investor and a Union target that exists or is to be established, and to which target the foreign investor makes capital available in order to carry out an economic activity in a Member State’.29 Article 2(7) of the draft Regulation defines the term ‘foreign investor’s subsidiary in the Union’. Accordingly, on the basis of Article 2(3) and (7) of the draft Regulation, Member States can screen intraEU direct investments provided that the ultimate owner is a foreign, i.e. non-EU, investor.30 Under Regulation 2019/452, screening intra-EU direct investments is only possible in cases of circumvention.31

Extending the scope to intra-EU direct investments with as ultimate owners non-EU investors can be seen as a response to the ruling of the Court in the Xella Magyarország case,32 wherein it ruled that Regulation 2019/452 does not apply to intra-EU direct investments except in cases of artificial arrangements that do not reflect the economic reality and are, therefore, meant to circumvent the screening mechanisms of the Member States.

Secondly and in contrast to the regime of Regulation 2019/452, the Commission encourages Member States to also screen greenfield investments, which refers to the setup of new facilities or undertakings in the EU by foreign investors or the foreign investor’s subsidiaries in the Union.33

Finally, Article 13 of the draft Regulation resembles to a great extent the list of factors in Article 4 of Regulation 2019/452. On the basis of, inter alia, these factors, Member States and the Commission can assess whether a particular FDI is likely to adversely affect security or public order. The draft Regulation differs from Regulation 2019/452, however, in two aspects with regard to the list of factors. First of all, under the draft Regulation Member States and the Commission are obliged, as indicated by the use of the word ‘shall’, to take into account at least the factors provided by Article 13(3) and (4) in their assessment of whether a particular FDI is adversely affecting security or public order. Under Regulation 2019/452, no such obligation exists because Article 4(1) and (2) employ the word ‘may’. Secondly, the draft Regulation extends the scope of the investor-related screening factors. The factors mentioned in Article 4(2)(a-c) Regulation 2019/452 are only dealing with the behaviour of the foreign investors. For instance, Article 4(2)(c) Regulation 2019/452 provides that the Member States and the Commission may take into account whether the foreign investor is directly or indirectly controlled by the government of a third country. The corresponding provision in Article 13(4)(e) draft Regulation provides that

29. The notion of foreign direct investment is defined in the draft Regulation in exactly the same manner as in Regulation 2019/452. See Article 2(2) draft Regulation and Article 2(1) Regulation 2019/452.

30. Article 2(6) draft Regulation defines a foreign investor as a natural person of a third country or an undertaking or entity which is established or otherwise organised under the laws of a third country.

31. See e.g. recital 10 and Article 3(6) Regulation 2019/452.

32. Judgement of the Court of Justice 30 March 2023, Xella Magyarország (Case C-106/22, ECLI:EU:C:2023:568, para. 32).

33. Recital 17 draft Regulation.

the Member States and the Commission must take into account whether the foreign investor, a natural person or entity controlling the foreign investor, the beneficial owner of the foreign investor, any of the subsidiaries of the foreign investor, or any other party owned or controlled by, or acting on behalf or at the direction of the foreign investor is likely to pursue a third country’s policy objectives, or facilitate the development of a third country’s military capabilities. Hence, under the draft Regulation the investor-related factors are extended to other persons and entities associated with the foreign investor.

6.2 Institutional and procedural aspects

Also with regard to institutional and procedural aspects, the draft Regulation brings greater harmonisation.

The draft Regulation requires that Member States must screen foreign investments in EU companies that participate in projects or programmes of Union interest34 or are economically active in specific areas of the economy.35 Article 2(18) of draft Regulation provides that projects or programmes of Union interests are those projects and programmes that provide for the development, maintenance or acquisition of critical infrastructure, critical technologies or critical inputs which are essential for security or public order. Annex I contains a list of these projects and programmes and includes, inter alia, the Space Programme, Euratom Research and Training Programme 2021-25 and the Digital Europe Programme. The specific areas of the economy referred to in Article 4(4)(b) draft Regulation are listed in Annex II and include, besides military and dual use items, inter alia advanced semiconductors, artificial intelligence and autonomous systems. Under Regulation 2019/452, Member States are not obliged to screen FDI which are likely to affect projects or programmes of Union interest. The Commission can issue only an opinion on the basis of Article 8(1) Regulation 2019/452 to Member States were the FDI is planned or completed. Even though Member States must ‘take utmost account’ of the opinion of the Commission and provide an explanation if the opinion is not followed,36 the final screening decision is their own.37 Accordingly, Regulation 2019/452 does not oblige Member States to screen FDI transactions likely of affecting projects or programmes of the Union interest.

Moreover, the draft Regulation introduces a notification obligation in three situations. First, Member States must always notify foreign investments in EU companies participating in projects or programmes of Union interest to other Member States and the Commission.38 Second, foreign investments in EU companies economically active in the areas listed in Annex II are only notifiable if the foreign investor or an associated natural personal or entity (i) is directly or indirectly controlled by a foreign government, (ii) is subject to sanctions, or (iii) is involved in a previously reviewed foreign investment that either was not approved or only conditionally approved.39 Finally, Member States must notify the Commission and the other Member States of foreign investments in

34. Article 4(4)(a) and recitals 11 and 20 draft Regulation.

35. Article 4(2)(g) in conjunction with Article 4(4)(b) draft Regulation.

36. Article 8(1)(c) Regulation 2019/452.

37. Article 6(9) Regulation 2019/452.

38. Article 5(1)(a) draft Regulation.

39. Article 5(1)(b) draft Regulation.

EU companies established in their territory where an in-depth investigation is initiated or where they intend to prohibit the transaction or adopt mitigating measures.40 The draft Regulation harmonises also, albeit to a certain extent, the procedure,41 relevant deadlines42 and information43 for notifiable transactions.

The draft Regulation also introduces a procedure to ensure the effective and efficient functioning of the cooperation mechanism with regard to multi-country transactions. Multi-country transactions are foreign investments that are subject to screening in several Member States.44 Foreign investors must file their requests for authorisation in all relevant Member States on the same day and must make cross-references to the other requests.45 The Member States in turn must send their notification to the cooperation mechanism on the same day.46 The draft Regulation also sets deadlines for, inter alia, the submission of comments and opinions by Member States and the Commission.47 The Member State concerned, must give utmost consideration to the comments and opinions of other Member States and the Commission.48 The Member States who have notified the multi-country foreign investment and the Commission must come together in order to discuss whether the intended outcomes are compatible with one another and, where applicable, the intended conditions are able to address identified crossborder risks adequately.49 The Member States where the foreign investment is planned or completed must notify their final screening decision to the Member States and the Commission who have provided comments and opinions respectively and also provide an explanation about its assessment of the comments and opinions received.50 If the other Member States and/or the Commission conclude that no utmost consideration is given to the comments and opinions, a discussion forum must be set up in order to prevent similar problems in the future.51

Finally, with regard to the minimum requirements, Article 4 of the draft Regulation resembles to a large extent Article 3 of Regulation 2019/452. The draft Regulation, however, introduces some changes. Article 4(2)(e) of the draft Regulation requires that foreign investors, their subsidiaries in the EU and the undertakings concerned, must have the possibility to seek judicial recourse against screening decisions. Moreover, 4(2)(c) of the draft Regulation empowers the screening authorities of the Member States to screen non-notified foreign investments by their own initiative for at least 15 months after the completion if the screening authorities are of the opinion that security or public order is adversely affected.52

40. Article 5(2) draft Regulation.

41. Article 7 and 8 draft Regulation.

42. Article 8 draft Regulation.

43. Article 10 draft Regulation.

44. Article 2(20) draft Regulation.

45. Article 6(2)(a) draft Regulation.

46. Article 6(2)(c) draft Regulation.

47. Article 7 and 8 draft Regulation.

48. Article 7(5) draft Regulation.

49. Article 7(6) draft Regulation.

50. Article 7(8) draft Regulation.

51. Article 7(9) draft Regulation.

52. See for the procedure Article 9 draft Regulation.

7. Concluding thoughts

Overall, it can be concluded that the draft Regulation takes important steps in addressing the shortcomings of Regulation 2019/452. The fact that it obliges Member States to adopt appropriate screening mechanisms can be applauded. Also the fact that certain procedures and deadlines are harmonised, is an important improvement. Further harmonisation would have been desirable. At the same time however, one must be aware of the fact that the competence of the EU to adopt harmonising measures in the ambit of security or public order is to a great extent curtailed by Article 4(2) TEU and Article 346 TFEU. Pursuant to Article 4(2)(a) TEU, the EU has shared competence in the field of the internal market while Article 346 TFEU provides that the protection of essential security interests is in principle a matter for the Member States. The limits of these two provisions are also acknowledged by both Regulation 2019/45253 and the draft Regulation.54

While important steps have been taken, it is unclear why under the own initiative procedure Member States and the Commission have the possibility to screen foreign investments by own initiative for at least 15 months after the completion of a foreign investment that is not notified or where the national screening authorities have grounds to consider that the foreign investment may affect security or public order. A superficial reading of this provision indicates that Member States and the Commission must wait at least 15 months after the completion of the foreign investment before they can start screening such investments under the own initiative procedure. However, upon closer look it appears that the screening authorities can/start screening non-notified foreign investments within 15 months after its completion, while a longer period is not precluded. It is therefore possible that screening authorities start screening non-notified foreign investments even after 20 months after their completion. Hence, no maximum term is set within which non-notified foreign investments must be screened. This is highly undesirable. It leads to legal uncertainty: due to the lack of a maximum term, screening authorities can decide to start screening non-notified foreign investments at any time they deem appropriate. Foreign investors of non-notifiable foreign investments can therefore always be confronted with a screening, and its possible consequences such as unwinding of the transaction. Moreover, it is questionable what the added value would be of screening foreign investments after a long period of its completion since irreversible consequences may have already materialised. It would be therefore more appropriate if a maximum term, such as 15 months, is set for the screening of non-notifiable foreign investments.

SUGGESTED CITATION: Najibullah Zamani; “The Legislative Proposal of the Commission to Strengthen FDI Screening: Rising from the Ashes of Regulation 2019/452, https://eulawlive.com/weekend-edition/weekend-edition-no184/

53. Article 1(2) Regulation 2019/452.

54. Article 1(4) draft Regulation.

HIGHLIGHT F THE WEEK S O

Directive (EU) 2024/1174 amending Directive 2014/59/EU and Regulation (EU) No 806/2014 as regards certain aspects of the minimum requirement for own funds and eligible liabilities, published in OJ

Monday 22 April

Official publication was made of Directive (EU) 2024/1174 which amends Directive 2014/59/EU and Regulation (EU) No 806/2014 regarding certain aspects of the minimum requirement for own funds and eligible liabilities (MREL), which responds to previous amendments and introduces new provisions aiming to enhance the effectiveness and proportionality of the MREL framework.

Read on EU Law Live

Preliminary ruling request on executing court’s power to refuse surrender of convicted person, if no EU law procedural safeguards afforded during conviction trial, published in OJ

Monday 22 April

Official publication was made of a request for a preliminary ruling from the Corte di appello di Napoli (Italy), lodged on 6 February 2024, seeking clarification in regard to Article 4(6) of Council Framework Decision 2002/584/JHA of 13 June 2002 and Articles 9(1)(i) and 25 of Council Framework Decision 2008/909/JHA of 27 November 2008: Khuzdar (C-95/24).

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Legal challenge against extension of boscalid approval period

Monday 22 April

Pollinis France filed an action against the European Commission regarding its decision to extend the approval period of the active substance boscalid, arguing violations of Regulation 1107/2009, the precautionary principle, TFEU articles, and the Charter of Fundamental Rights: Pollinis France v Commission (Case T-75/24).

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Preliminary ruling request on criteria of random selection of judges to handle criminal cases, published in OJ

Monday 22 April

The Sofiyski gradski sad (Sofia City Court) in Bulgaria referred a preliminary ruling to the Court of Justice of the European Union (CJEU) in Case C-16/24, concerning criminal proceedings against individuals identified as YR, WV, AN, and WY, the main question posed revolving around the interpretation of national law concerning the administration of justice, particularly in the context of random selection of judges to handle criminal cases.

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New preliminary reference on the interpretation of Damages Directive, published in OJ

Monday 22 April

The Official Journal of the EU published a request for a preliminary ruling from the Juzgado de lo Mercantil n.o 1 de Zaragoza (Spain), lodged on 12 January 2024, in the context of compensation for harm caused by an infringement of antitrust law, specifically, the prohibition of cartels: Nissan Iberia (C-21/24).

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Preliminary reference regarding confiscation of proceeds of crime relating to criminal proceedings concluded with an acquittal

Monday 22 April

A preliminary ruling request from the Criminal Court of Appeal of the Republic of Croatia, lodged on 9 January 2024, in regard to criminal proceedings involving D. d.o.o and Županijsko državno odvjetništvo u Zagrebu, was officially published in the OJ: Županijsko državno odvjetništvo (C-8/24).

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Second formal proceedings against TikTok initiated by Commission, under DSA, concerning launching of TikTok Lite

Tuesday 23 April

The Commission opened a second formal proceedings against TikTok, under the Digital Services Act (DSA), in relation to the “Task and Reward Program” of TikTok Lite, which allows users to earn points while performing certain “tasks” on TikTok, such as watching videos, liking content, following creators, etc., has been launched without conducting a due diligence assessment of the risks it entails in terms of addictive effect on users, particularly children.

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Council Recommendation of 12 April 2024 on the economic policy of the euro area, published in OJ

Tuesday 23 April

Official publication was made of Council Recommendation of 12 April 2024 on the economic policy of the euro area, addressing several key economic challenges facing the Member States.

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Preliminary ruling requests on the pursuit of damages and compliance in motor vehicle regulations

Tuesday 23 April

Official publication was made of two preliminary ruling requests concerning the pursuit of damages and compliance in motor vehicle regulations: YK v Volkswagen AG (Case C-801/23, Volkswagen) and FD v Mercedes-Benz Group AG (Case C-751/23, Mercedes-Benz Group).

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Court of Justice to stream hearing of case regarding identification of relevant markets and obligations of an undertaking dominant in digital markets

Tuesday 23 April

Court of Justice’s Grand Chamber hearing in Alphabet and Others (C-233/23), a case regarding a preliminary ruling request, by which the referring court has sought clarification on the interpretation of the concept of abuse of a dominant position, within the meaning of Article 102 TFEU, in particular as regards the identification of (i) the relevant markets and (ii) any obligations of an undertaking that is dominant in one or more digital markets, was streamed on the Court’s website.

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ECtHR: Turkey violated diplomatic immunity and human rights for the UN Judge’s arrest and detention

Tuesday 23 April

The European Court of Human Rights ruled on the case of Aydın Sefa Akay v. Turkey, concerning the arrest and pre-trial detention of a UN judge, Aydın Sefa Akay, in the aftermath of the 2016 attempted military coup in Turkey.

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Unannounced inspections concerning alleged distortion of internal market through foreign subsidies in the security equipment sector, carried out by Commission

Tuesday 23 April

The European Commission started carrying out unannounced inspections of the premises of an undertaking operating in the sector of production and sale of security equipment in the Union, following indications that the company may have received foreign subsidies that could distort the internal market.

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Commission adopts the Recommendation on developing and strengthening integrated child protection systems in the best interests of the child

Wednesday 24 April

The European Commission adopted the Recommendation on developing and reinforcing integrated child protection systems, which underscores the importance of collaborative efforts across all sectors to combat violence against children, a persistent challenge within and outside the EU.

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General Court partially overturns Frontex decision on access to documents

Wednesday 24 April

The General Court delivered its judgment in Naass and Sea-Watch v Frontex (Case T-205/22), a case concerning Frontex’s refusal to grant access to 73 documents to Sea-Watch, a German humanitarian organisation engaged in search and rescue operations in the Central Mediterranean Sea.

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Commission request for interested parties to submit comments relating to France’s restructuring aid to Corsair, published in OJ

Wednesday 24 April

The Official Journal of the EU published an invitation, for interested parties, to submit comments, pursuant to Article 108(2) TFEU, in relation to State aid granted by France to Corsair.

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EU investigates China’s practices in medical device procurement

Wednesday 24 April

The European Commission launched an investigation, pursuant to the International Procurement Instrument (IPI), into alleged measures and practices by the People’s Republic of China (PRC) that obstruct access of Union economic operators, goods, and services to China’s public procurement market for medical devices.

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General Court dismisses another action seeking the annulment of Commission’s decision finding Spanish Tax Lease Scheme incompatible with EU State aid rules

Wednesday 24 April

The General Court, sitting in its Extended Composition formation, handed down its judgment in Hispavima v Commission (T-514/14), a case concerning, in essence, the applicant’s claim that the Court should annul a Commission’s decision, in so far as it declares the existence of State aid, in the context of a tax leasing regime, implemented by Spain, and orders its recovery from the investors in the Economic Interest Groupings (EIGs).

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General Court upholds decision on EU trade marks and reputation

Wednesday 24 April

The General Court delivered its judgment in Case T-157/23 | Kneipp v EUIPO – Patou (Joyful by nature) in which the General Court upheld EUIPO’s decision, inn a case between Kneipp GmbH and Maison Jean Patou regarding the registration of the trade mark “Joyful by nature” with the EUIPO.

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European Elections: Belgian Presidency decides to activate the Council’s IPCR (Integrated Political Crisis Response)

Thursday 25 April

In preparation for the June 2024 European elections, the Belgian Presidency initiated the activation of the Council’s Integrated Political Crisis Response (IPCR) arrangements, focusing on information sharing concerning foreign interference.

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Final Report of Hearing Officer in case regarding the proposed acquisition of GrandVision by EssilorLuxottica, published in OJ

Thursday 25 April

Official publication was made of the Final Report of the Hearing Officer in Case M.9569 - EssilorLuxottica/GrandVision concerning the proposed concentration by which EssilorLuxottica S.A. would acquire, within the meaning of Article 3(1)(b) of the ‘Merger Regulation, sole control of GrandVision N.V.

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Commission Notice – Questions and answers on the implementation of EU rules on organic beekeeping, published in OJ

Thursday 25 April

Official publication was made of Commission Notice – Questions and answers on the implementation of EU rules on organic beekeeping.

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AG Rantos: Prohibition on processing sensitive data is lifted when such data is made manifestly public, however, such processing is not in itself permitted for purposes of personalised advertising

Thursday 25 April

Advocate General (AG) Rantos handed down his Opinion in a case concerning a preliminary ruling request, by which clarification had been sought on the interpretation of certain provisions of the GDPR, in the context of the lawfulness of contractual provisions in general terms of service for platform agreements, which provide for the processing of personal data with a view to aggregating and analysing it for the purposes of personalised advertising: Schrems (Communication de données au grand public) (C-446/21).

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Withdrawal, on the basis of classified information, of the residence permit of a third-country national bringing up a child who is an EU citizen must be made subject to an effective remedy

Thursday 25 April

The Court of Justice handed down judgment in NW (C-420/22) and PQ (Classified information) (C-528/22), two cases concerning the withdrawal of the residence permit of third-country nationals lawfully residing in Hungary.

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Union law does not preclude automatic loss of EU citizenship following recovery of third country nationality

Thursday 25 April

The Court of Justice handed down judgment in Stadt Duisburg (Loss of German nationality) (C-684/22 to C-686/22), a series of cases concerning the applicants’ loss of their German nationality.

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Court of Justice rules on cross-border company management

Thursday 25 April

The Court of Justice delivered its judgment in Edil Work 2 y S.T. (C-276/22) concerning freedom of establishment within the EU, specifically regarding a company initially established in Italy but later operating in Luxembourg while continuing its main activities in Italy.

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Compass Banca: AG Emiliou clarifies conditions in which cross-selling can be regarded as ‘aggressive’, and therefore as ‘unfair’, within the meaning of Directive 2005/29

Thursday 25 April

Advocate General Emiliou delivered his Opinion in Compass Banca (C-646/22), a case concerning the interpretation of Directive 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market (‘Unfair Commercial Practices Directives’ or ‘UCPD’).

Read on EU Law Live

PAN Europe: Court of Justice interprets several conditions for the placing of plant protection products on the market under Regulation 1107/2009

Thursday 25 April

The Court of Justice handed down judgment in (PAN Europe) (Cases C-308/22; and C-309 and C-310/22), three requests for a preliminary ruling concerning the interpretation of Regulation 1007/2009 concerning the placing of plant protection products on the market (as amended).

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Court of Justice provides clarification regarding certain provisions of the Water Framework Directive, in relation to a development project seeking to abstract water from lake

Thursday 25 April

The Second Chamber of the Court of Justice rendered its judgment in a case regarding a preliminary reference concerning the interpretation of Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for Community action in the field of water policy: Sweetman (C-301/22).

Read on EU Law Live

AG Spzunar delivers Opinion in case concerning the protection the content of variables in a computer’s memory, altered by another program

Thursday 25 April

Advocate General Szpunar delivered his Opinion in Sony Computer Entertainment Europe (C-159/23), a case concerning the question of whether the protection of computer programs, enshrined in Directive 2009/24, extends to the content of variables in a computer’s memory, altered by another program while the protected program runs.

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Advocate General Szpunar’s Opinion on GDPR remedies and ‘data concerning health’

Thursday 25 April

Advocate General Szpunar’s opinion, delivered today, addresses Case C 21/23, revolving around an injunction action, alleging unfair competition due to non-compliance with GDPR requirements in online marketing of non-prescription medicines, and examining whether the data involved qualifies as ‘data concerning health’ and, consequently, if enhanced protection applies.

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Communication from the Commission – Guiding criteria and principles for the essential use concept in EU legislation dealing with chemicals, published in OJ

Friday 26 April

Official publication was made of Communication from the Commission – Guiding criteria and principles for the essential use concept in EU legislation dealing with chemicals, in which the Commission lays out the guiding criteria and principles for what it terms the “essential use” concept within EU legislation addressing chemicals.

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DSA: Commission Guidelines for Very Large Online Platforms and Very Large Online Search Engines on the mitigation of systemic risks for electoral processes, published in OJ

Friday 26 April

Official publication was made of a Commission Communication in regard to its Guidelines for providers of Very Large Online Platforms (‘VLOP’) and Very Large Online Search Engines (‘VLOSE’) on the mitigation of systemic risks for electoral processes pursuant to Article 35(3) of Regulation (EU) 2022/2065 (Digital Services Act).

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Vacancy announcement: Legal secretary at the General Court

Friday 26 April

A position of legal secretary (référendaire) will be available in the 6th Chamber of the General Court, under the administrative authority of Judge Maria José Costeira, as from 3 September 2024.

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EFTA Surveillance Authority (ESA) closes procedure against Iceland for whale hunting practices

Friday 26 April

The EFTA Surveillance Authority (ESA) closed a complaint regarding Iceland’s alleged non-compliance with EEA legislation related to whale hunting, highlighting issues such as outdoor processing of whale carcasses, water contamination risks, and potential breaches of emissions regulations.

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Fashion online retailer, Shein, to comply with more stringent DSA rules, following its designation as a Very Large Online Platform by the Commission

Friday 26 April

The Commission formally designated Shein, a fashion online retailer with an average of more than 45 million monthly users in the European Union, as a Very Large Online Platform (VLOP) under the Digital Services Act (DSA).

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Commission approves €300 million French state aid for Small Modular Nuclear Reactors

Friday 26 April

The European Commission approved a €300 million aid package by France to support Electricité de France’s (EDF) subsidiary, Nuward, in researching and developing Small Modular Nuclear Reactors (SMRs).

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Commission adopts proposals regarding Association Agreement between the EU, on the one hand, and Andorra and San Marino, on the other

Friday 26 April

The Commission adopted proposals for Council decisions on the signing and provisional application, as well as on the conclusion of the Association Agreement between the EU and Andorra and San Marino, respectively, which will allow Andorra and San Marino to participate in the EU’s internal market, having access to it at a level comparable to that enjoyed by Norway, Iceland and Liechtenstein under the Agreement on the European Economic Area.

Read on EU Law Live