Investment Screening and WTO Law: The Example of the EU Screening Regulation (SpringerBriefs in Law) 303146723X, 9783031467233

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SpringerBriefs in Law Erich Vranes

Investment Screening and WTO Law The Example of the EU Screening Regulation

SpringerBriefs in Law

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Erich Vranes

Investment Screening and WTO Law The Example of the EU Screening Regulation

Erich Vranes Institute for European and International Law Vienna University of Economics and Business Vienna, Austria

ISSN 2192-855X ISSN 2192-8568 (electronic) SpringerBriefs in Law ISBN 978-3-031-46723-3 ISBN 978-3-031-46724-0 (eBook) https://doi.org/10.1007/978-3-031-46724-0 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Paper in this product is recyclable.

Contents

1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 4

2

Political and Economic Reasons for Investment Screening . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5 7

3

Investment Screening in the EU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Political Re-orientations in the EU . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Investment Screening and EU Primary Law . . . . . . . . . . . . . . . . . . 3.3 The Status of WTO Law in the EU . . . . . . . . . . . . . . . . . . . . . . . . 3.4 The EU Screening Regulation Outlined . . . . . . . . . . . . . . . . . . . . . 3.4.1 Basic Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.2 Central Concepts: “Likely to Affect. . .Security or Public Order” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 National Implementation: The Example of Austria . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9 9 10 11 13 13

WTO Disciplines Relevant for Investment Screening . . . . . . . . . . . . . 4.1 The Limited Scope of the TRIMs Agreement . . . . . . . . . . . . . . . . . 4.2 GATT Disciplines Relevant for Investment Screening . . . . . . . . . . . 4.2.1 National Treatment (Art. III:4) . . . . . . . . . . . . . . . . . . . . . . 4.2.2 Quantitative Restrictions and Related Measures (Art. XI:1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.3 Most-Favoured-Nation Principle (Art. I) . . . . . . . . . . . . . . . 4.2.4 Transparency and Publication Requirements (Art. X) . . . . . . 4.3 GATS Disciplines Relevant for Investment Screening . . . . . . . . . . . 4.3.1 Characteristics and Scope of the GATS . . . . . . . . . . . . . . . . 4.3.2 National Treatment (Art. XVII) . . . . . . . . . . . . . . . . . . . . . 4.3.3 Market Access (Art. XVI) . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.4 Most-Favoured-Nation Treatment (Art. II) . . . . . . . . . . . . . .

23 23 24 24

4

16 17 20

26 26 27 29 29 31 32 33

v

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Contents

4.3.5

Transparency (Art. III) and Domestic Regulation (Art. VI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Relevant Exceptions in the GATT and GATS . . . . . . . . . . . . . . . . 4.4.1 General Exceptions in the GATT (Art. XX(d) and Art. XX(j)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4.2 General Exceptions in the GATS (Art. XIV) . . . . . . . . . . . 4.4.3 Security Exceptions in the GATT (Art. XXI) and GATS (Art. XIVbis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 Unexpected Challenges? The Overlap Between the GATT and GATS Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

6

. 34 . 35 . 35 . 40 . 42 . 49 . 51

The Example of EU Investment Screening As a “Test Case” Under WTO Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Vast Scope of Interaction with WTO Law . . . . . . . . . . . . . . . . . . . 5.2 Possible Violations of Basic WTO Disciplines . . . . . . . . . . . . . . . . 5.3 Justification of Violations of WTO Law . . . . . . . . . . . . . . . . . . . . . 5.3.1 General Exceptions in the GATT and GATS . . . . . . . . . . . . 5.3.2 Security Exceptions in the GATT and GATS . . . . . . . . . . . . 5.3.3 The GATS Security Exceptions As Isolated Parameters in EU Court Proceedings? . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Conclusions on the Level of WTO Law . . . . . . . . . . . . . . . . . . . . . 6.2 The Example of EU Investment Screening Assessed Under WTO Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table of Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATT 1947 and WTO Disputes and Panel Reports . . . . . . . . . . . . . . . . WTO Appellate Body Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cases Decided By the European Court of Justice . . . . . . . . . . . . . . . . .

. . . .

53 53 54 56 57 60 62 64 65 65 67 69 71 71 72 73

Chapter 1

Introduction

In recent years, there has been a distinct intensification in the use of existing, and the introduction of new, investment screening mechanisms around the world.1 These are employed by states as instruments to analyse foreign investment transactions, which may lead to the imposition of preconditions for, or a denial of, entry, if a given investment is deemed unacceptable by the host country.2 While the reasons for this global proliferation of screening activities are manifold, this surge is in particular connected with heightening sovereignty concerns, political, economic and strategic re-orientations, and the rise of new economic powers, such as China.3 Despite the considerable effects that investment screening may have on international investment and trade, there is hardly any literature examining the constraints following from the legal framework of the World Trade Organization (WTO) for the design and application of investment screening mechanisms.4 However, the importance of WTO law for such instruments is substantial: Thus, the scopes of application of the WTO General Agreement on Tariffs and Trade (GATT) and the General Agreement on Services (GATS) as two of the WTO agreements primarily relevant for investment screening5 are broad, as they in principle apply to any measures, including measures regulating investments, that—perhaps incidentally—affect trade or the “commercial presence” of foreign investors.

1

Cf. below, Sect. 2. Cf. Bauerle Danzman and Meunier (2021), p. 1; see also Voon and Merriman (2022), pp. 1 ff for a similar definition; the definition adopted by the EU Regulation will be discussed below, Sect. 3.4.1. 3 On this Cf. below, Chap. 2. 4 There are only some notable exceptions: Fassion and Natens (2020), pp. 121 ff outline the impact of the GATT, GATS and TRIMs agreements for EU investment screening; Velten (2020), pp. 3 ff examines the relevance of the WTO concepts of security interests and public order (to be found in the general exceptions and security exceptions clauses of the GATT and GATS) for the EU Investment Screening Regulation. On these issues see in particular below, Sects. 4.4 and 5.3.3. 5 The WTO Agreement on Trade-Related Investment Measures (TRIMs) is relevant, too; however, its scope is more restrictive than that of the GATT as will be explained below in Sect. 4.1. 2

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 E. Vranes, Investment Screening and WTO Law, SpringerBriefs in Law, https://doi.org/10.1007/978-3-031-46724-0_1

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Introduction

In addition, in contrast to most bilateral investment treaties (BITs), the ambit of the GATS extends to market access obligations and, hence, the so-called pre-establishment phase of investments. Furthermore, since the scopes of the GATT and GATS overlap in several constellations, there is a clear risk that screening activities in sectors where a WTO Member has not undertaken GATS commitments could possibly be challenged, indirectly under the GATT, if screening activities have the potential of affecting trade in goods. The risk that screening mechanisms are challenged before the WTO is underlined by pertinent GATT/WTO panel reports, in particular a classic GATT case involving Canadian investment screening activities6 and the recent EU—Energy case, which has dealt with one of the first WTO complaints brought by Russia after its WTO accession concerning in particular investment screening measures taken by the EU in the energy and gas sector.7 This contribution therefore aims to clarify the WTO obligations that are most significant for investment screening. It will in particular use two examples for illustrating the interplay between WTO law and investment screening mechanisms, namely the EU Screening Regulation,8 which entered into force in 2020, and the Austrian Act on Investment Screening,9 which serves to implement this regulation. In analyzing relevant WTO provisions, this contribution also repeatedly refers to the aforementioned panel report in EU—Energy. In this complex report, which dealt with 31 requests by Russia to find violations of WTO law by the EU, the panel has held that several EU measures regulating and screening investments affected trade and therefore infringed WTO law.10 Although the report has remained unadopted

GATT Panel Report, Canada – Administration of the Foreign Investment Review Act, L/5504, adopted 7 February 1984, BISD 30S/140 (hereinafter Panel Report, Canada – FIRA). 7 Panel Report, European Union and its member States – Certain Measures Relating to the Energy Sector, WT/DS476/R, circulated to WTO Members 10 August 2018 [appealed by the European Union on 21 September 2018] (hereinafter: Panel Report, EU – Energy). 8 Regulation (EU) 2019/452, OJ L 79/I, 21/03/2019, p. 1 (hereinafter: “Screening Regulation”). 9 Austrian Bundesgesetz über die Kontrolle von ausländischen Direktinvestitionen (Investitionskontrollgesetz), Austrian Federal Gazette BGBl. I Nr. 87/2022. 10 The measures at issue in this report were measures that regulate the natural gas sector and the development of natural gas infrastructure within the European Union, namely 6

(i) (ii) (iii) (iv) (v) (vi) (vii)

a so-called “unbundling measure”; a “public body measure”; a “LNG measure”; an “infrastructure exemption measure”; an “upstream pipeline networks measure”; a “third-country certification measure”; a so-called “TEN-E measure”.

The “unbundling measure” provided rules on the separation (“unbundling”) of undertakings performing any of the functions of production or supply, on the one hand, and transmission system operators or transmission systems, on the other hand; these rules were applicable to vertically integrated undertakings. The “LNG measure” dealt with terminals used for the liquefaction of natural gas or the importation, offloading, and re-gasification of LNG; it made LNG system operators subject to rules on third-party access. The “infrastructure exemption measure” provided

1

Introduction

3

due to the current crisis of the WTO Appellate Body,11 it illustrates pertinent WTO obligations particularly well, offering important indications as to how relevant WTO provisions should arguably be interpreted12 and applied to investment screening activities. Moreover, several central provisions of WTO law have been interpreted for the very first time in this report. Since, according to the constant jurisprudence of the European Court of Justice (ECJ), WTO law is an integral part of EU law, the obligations laid down in relevant WTO agreements are legally binding also as a matter of EU law.13 Therefore, these commitments and their interpretation are likewise relevant within the EU legal order in the application of the EU Screening Regulation and national screening mechanisms. Since the duty to take into account these WTO obligations may pose a considerable challenge for domestic administrations and tribunals, clarifying these requirements may be helpful also in this regard. The present analysis will therefore proceed as follows: After a short overview of the political and economic reasons for the recent surge in the establishment of investment screening mechanisms (Chap. 2), Chap. 3 will explain the political motivations for, and the legal particularities of, investment screening in the EU’s multilevel system. It will outline the basic principles in EU primary law, the main features of the EU Screening Regulation and the example of its implementation in Austria. It will also briefly explain the status of WTO law in the EU legal order, pointing out that requirements of WTO law that are relevant for investment screening could also be enforced by the EU Commission against EU Member States before the European Court of Justice (ECJ), i.e. within the EU legal order. Chapter 4 will analyse those principles of WTO law that are most relevant for investment screening mechanisms, taking into account recent WTO rulings that have hardly been analysed

that certain categories of infrastructure could be exempted from generally applicable rules such as the aforementioned rules regarding unbundling, if this e.g. enhanced security of supply. The “upstream pipeline networks measure” laid down rules e.g. for pipelines operated as part of an oil or gas production project. The “third-country certification measure” dealt with the certification of operators controlled by third countries (such certification could be denied if granting certification would put at risk the security of energy supply). The TEN-E measure dealt in particular with measures facilitating the implementation of “projects of common interest” to the EU Member States. Russia challenged these measures under several provisions of the GATT, the GATS, the TRIMs and other WTO Agreements. It is of particular interest e.g. that the “unbundling measure” and the “third-country certification measure” involved the screening of investments, in order to determine whether foreign investments endanger the security of energy supply. 11 The Report has been appealed by the EU to the EU Appellate Body. Since the Appellate Body has not been functioning since December 2019 (given that the US has been blocking the appointment of new judges for several years), the Report has not become legally binding. 12 In this regard, it should be pointed out that it has been stressed in WTO dispute settlement practice that unadopted—and thus formally non-binding—WTO panel reports can nevertheless provide “useful guidance in the reasoning” of other panels (cf. Panel Report, Japan—Alcoholic Beverages II, para. 6.10; Appellate Body Report, Japan—Alcoholic Beverages II DSR 1996:I, 97, p. 10). 13 Cf. below, Sect. 3.3.

4

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Introduction

so far as to their significance for investment screening. Chapter 5 will then assess the system of EU investment screening as a “test case” that exemplifies the importance of relevant WTO rules for national investment screening mechanisms. Chapter 6 summarizes the main conclusions derived from this analysis.

References Bauerle Danzman S, Meunier S (2021) The big screen: mapping the diffusion of foreign investment screening mechanisms, 27/09/2021, available via SSRN, https://papers.ssrn.com/sol3/papers. cfm?abstract_id=3913248 Fassion J, Natens B (2020) The EU proposal for FDI control: the WTO on the sidelines? In: Bourgeois JHJ (ed) EU framework for foreign direct investment control. Wolters Kluwer, Alphen an den Rijn, pp 121–134 Velten J (2020) The investment screening regulation and its screening ground “Security or Public Order”: how the WTO law understanding undermines the regulation’s objectives, available via https://repository.graduateinstitute.ch/record/298429?_ga=2.7440050.1223939625.166660414 9-2031466909.1666604148 Voon T, Merriman D (2022) Incoming: how international investment law constrains foreign investment screening. JWIT 23(3):1–40

Chapter 2

Political and Economic Reasons for Investment Screening

In economic terms, trade and investment have always been closely intertwined.1 However, after World War II, the legal frameworks regulating trade on the one hand and investment on the other have developed in quite markedly divergent fashions: While international trade was first regulated in the multilateral GATT 1947 Agreement and then the multilateral WTO regime, foreign investment activities came to be largely governed by more than 2,500 bilateral investment treaties (BITs), which typically are enforced by private investors in arbitration proceedings (investor-state dispute settlement, ISDS).2 Yet, as pointed out in the literature, with globalization rapidly progressing over the last decades, it has become clear how closely linked trade and investment are in legal terms, too: As production chains are progressively being globalized, there is a distinct need for foreign direct investments (FDI) in countries where relevant parts of the production chains are located, and, consequently, for the legal protection of such investments. This may have contributed to the realization that WTO rules may also have a substantial impact on the design of national measures affecting FDI.3 In political terms, although many states have been competing for inward FDI for several decades, a partial change of mind has occurred in recent years, with ever more host countries questioning the dogma that incoming FDI is always beneficial: As has been noted, this shift in attitude has given rise to new trends of “reclaiming sovereignty” in the investment field, such as withdrawals by several states from bilateral investment treaties, a greater emphasis on the “right to regulate” and “policy

Cf. Cho and Kurtz (2015), p. 5, who speak of a “natural amalgamation” of trade and investment activities and point e.g. to residential communities created by foreign traders in China in the Tang Dynasty several centuries A.D., to trade by foreign investors (acting as associations) in Medieval Europe, and State-chartered companies pursuing trade and investment activities in the postIndustrial Revolution era. 2 Cf. Cho and Kurtz (2015), pp. 5 ff; see also DiMascio and Pauwelyn (2017), pp. 48 ff. 3 On this cf. Fassion and Natens (2020), pp. 121–122. 1

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 E. Vranes, Investment Screening and WTO Law, SpringerBriefs in Law, https://doi.org/10.1007/978-3-031-46724-0_2

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Political and Economic Reasons for Investment Screening

space clauses” in international economic agreements,4 and the increased regulation of FDI through domestic law.5 This political re-orientation has also resulted in new or reinstated mechanisms for investment control like state ownership, golden shares, and restrictions on foreign equity.6 An important component of this political realignment is the increased use of investment screening. Investment screening mechanisms are not novel, however: Thus, it has been pointed out that 30 years ago about 70% of OECD countries had mechanisms of this type in place, which mainly served to determine whether inward FDI would result in net economic benefits for the host country.7 After a period of liberalization during which formal investment screening declined, such mechanisms are now increasingly employed to examine whether given foreign investments pose a risk for national security and related concerns.8 Empirical studies show that 29 states (including the EU) and comprising almost all major economies in the world have established mechanisms for controlling inbound FDI.9 As indicated by way of introduction, the reasons for this surge in FDI screening are manifold. On the one hand, a new balance of powers has evolved in recent years, with the BRICS states10 and developing countries having turned from importers to exporters of capital. On the other hand, sovereign wealth funds (SWFs) and state-owned enterprises (SOEs), including entities based in developing countries and China in particular, have increased investments abroad, often in industrialized states and the EU.11 As it is often doubted to what extent such entities content themselves with pursuing “purely” economic goals, their investments abroad have encountered scepticism in a growing number of potential host countries. Furthermore, there is a risk, perceived by many actors, that SOEs and enterprises from certain countries may receive undue amounts of foreign subsidies and that certain foreign investors might be more interested in acquiring know-how than in the sustained economic viability of their target companies.12 Moreover, concerns over FDI influx have recently also been spurred by (attempted) take-overs in the medical and pharmaceutical sectors during the COVID-19 crisis.13 4

Cf. e.g. Madner (2017), p. 310. On this cf. Dimitropoulos (1999), p. 2; see also Voon and Merriman (2022), pp. 1 ff. 6 Cf. Bauerle Danzman and Meunier (2021), p. 2. 7 Bauerle Danzman and Meunier (2021), p. 2; a case in point is the FIRA case, which dealt with a Canadian policy of reviewing whether foreign investments in Canada were likely to be of “significant benefit to Canada” (Panel Report, Canada – FIRA, para. 2.2). 8 Bohnert (2022), pp. 10 ff with further references. 9 Cf. Voon and Merriman (2022), pp. ff (referring to UNCTAD studies); see also Dimitropoulos (1999), p. 3; Bohnert (2022), pp. 10 ff. 10 The acronym BRICS, or BRICS countries, is used to refer to Brazil, Russia, India, China and South Africa. 11 On this and the following cf. also e.g. Dimitropoulos (1999), pp. 10 ff; Bohnert (2022), pp. 10 ff with extensive further references to academic literature and empirical studies. 12 Bohnert (2022), p. 13. 13 Cf. Bohnert (2022), pp. 19 ff; Winner (2022), p. 123. 5

References

7

Comparative overviews show that screening mechanisms vary widely in their designs and scopes. They may e.g. range from cross-sectoral to sector-specific and even entity-specific controls. Screening may occur from an ex ante as well as an ex post perspective. Screening need not be focussed on inbound investments, but may encompass outward investment flows; it may be confined to FDI or may also include portfolio investments; and it may be subject to judicial review with considerably varying degrees of judicial deference14 vis-à-vis government action.15 Comparative studies also show that the sectoral scope of many screening mechanisms has tended to extend, while the thresholds that trigger screening tend to be lowered; also, there has been a convergence in the design of such mechanisms.16 In view of this multitude of models of investment screening, this study will in particular use the concrete example of the EU Investment Screening Regulation as a “test case” for illustrating the relevance of WTO law for investment screening more generally.

References Bauerle Danzman S, Meunier S (2021) The big screen: mapping the diffusion of foreign investment screening mechanisms, 27/09/2021, available via SSRN, https://papers.ssrn.com/sol3/papers. cfm?abstract_id=3913248 Bohnert S (2022) EU investment screening: a roadblock in a one-way street? In: Winner M (ed) Kontrolle ausländischer Direktinvestitionen in Mittel- und Osteuropa. Facultas, Vienna, pp 9–97 Cho S, Kurtz J (2015) Converging divergences: a common law of International Trade and Investment, 25/02/2015, available via SSRN, https://papers.ssrn.com/sol3/papers.cfm? abstract_id=2546326 Dimascio N, Pauwelyn J (2017) Select nondiscrimination in trade and investment treaties. Am J Int Law 102(1):48–89 Dimitropoulos G (1999) The role of investment screening mechanisms, 01/12/1999, available via SSRN, https://ssrn.com/abstract=3538735 Fassion J, Natens B (2020) The EU proposal for FDI control: the WTO on the sidelines? In: Bourgeois JHJ (ed) EU framework for foreign direct investment control. Wolters Kluwer, Alphen an den Rijn, pp 121–134 Madner V (2017) A new generation of trade agreements. In: Griller S, Obwexer W, Vranes E (eds) Mega-regional trade agreements: CETA, TTIP, and TISA. Oxford University Press, Oxford, pp 307–313 Voon T, Merriman D (2022) Incoming: how international investment law constrains foreign investment screening. JWIT 23(3):1–40

14

Wang (2016), pp. 193, 215–216. On this see Bauerle Danzman and Meunier (2021), pp. 4 ff; Dimitropoulos (1999), pp. 4 ff, 10 ff, 23 ff; Voon and Merriman (2022), pp. 1 ff. 16 See Bauerle Danzman and Meunier (2021), pp. 8 ff, who e.g. point to a focus on pre-closing reviews of investments; see also Voon and Merriman (2022), pp. 4 ff. 15

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Wang Z. (Judy)(2016) CFIUS under review: national security review in the US and the WTO. J World Trade 50(2):193–217 Winner M (2022) Kontrolle ausländischer Direktinvestitionen in Österreich. In: Winner M (ed) Kontrolle ausländischer Direktinvestitionen in Mittel- und Osteuropa. Facultas, Vienna, pp 121–175

Chapter 3

Investment Screening in the EU

In order to understand the approach taken by the EU to investment screening, one has to be aware of some political concerns and legal characteristics that are specific to the EU legal order. These will be explained in the following.

3.1

Political Re-orientations in the EU

While several of the aforementioned concerns over FDI1 are shared by many countries, there are apprehensions that are specifically connected to the multilevel system of governance in the EU. At the core of these concerns is the EU internal market, which in principle guarantees free movement of investors across the internal borders of the EU. However, this free movement within the internal market has not so far been complemented by a common external investment policy. Hence, there is a risk that the national policies of individual Member States vis-à-vis third states are circumvented by third-country investors creating an establishment in one Member State in order to make further cross-border investments in other Member States by relying on the fundamental freedoms guaranteed in EU internal market law.2 Moreover, there also is a possibility that foreign investors (in particular investors pursuing strategic goals beyond pure business interests) may attempt to “divide and rule, playing one Member State against another”.3 Whereas the EU, and the EU Commission in particular, had taken a very liberal stance regarding inward FDI since the 1990s, a distinct policy shift has taken place in the EU in recent years. This refocusing of policy has been prompted by several wake-up calls, such as court and arbitration proceedings started by foreign investors

1

Cf. above, Chap. 2. Cf. Bohnert (2022), pp. 20 ff, 23 ff; Vranes (2012), pp. 659, 672. 3 Snell (2019), pp. 137–138. 2

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 E. Vranes, Investment Screening and WTO Law, SpringerBriefs in Law, https://doi.org/10.1007/978-3-031-46724-0_3

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in Germany in order challenge environmentally motivated decisions to close down energy plants,4 Italian attempts to prevent Russian investments in Italian infrastructure (giving rise to proceedings before the ECJ),5 and growing amounts of Chinese and Russian investments in the EU more generally, which has become a main destination for world-wide investments.6 The fact that the economic interests of the EU Member States—as well as their perceptions of national security concerns—may diverge considerably constitutes an evident source of potential conflicts in the EU. This is one of the main reasons why several stakeholders felt that a coordinating framework as the one established by the EU Screening Regulation arguably has been requisite.7

3.2

Investment Screening and EU Primary Law

In order to fully understand the functioning of the EU Regulation on investment screening and its interplay with WTO law, it is useful to briefly outline relevant principles of EU primary law and the status of WTO law within the EU. According to EU primary law, the fundamental freedom of free movement of capital applies on an erga omnes basis, which means that it can be invoked both by EU investors and investors established in third countries (Art. 63 TFEU). This principle applies irrespective of whether third countries grant reciprocal access to investors from the EU. Furthermore, EU primary law prohibits all restrictions of the freedom of establishment of nationals and companies of one Member State in another Member State (Art. 49 TFEU). By contrast with the free movement of capital, the freedom of establishment cannot be invoked by third-country investors. Moreover, according to EU law, the EU has exclusive competence with respect to the Commercial Policy, which includes the regulation of FDI vis-à-vis third countries (Arts. 3(1) and 207 TFEU). Since the free movement of capital and the freedom of establishment clearly overlap (particularly in cases involving FDI), the ECJ has tried to clarify the rules applying in such cases in a long series of rulings.8 A central outcome of this case law

4

Vranes (2012), p. 644. CJEU, case C-326/07, Commission v. Italy, ECLI:EU:C:2009:193. 6 Bohnert (2022), pp. 13 ff; de Kok (2019), pp. 24 ff. 7 de Kok (2019), pp. 39 ff; see also Snell (2019), pp. 137–138. 8 One of the leading cases in this line of jurisprudence is CJEU, Case 35/11, Test Claimants in the FII Group Litigation, ECLI:EU:C:2012:707. In this ruling, the Court held that Member State measures that are intended to apply only to shareholdings which enable the holder to exert a definite influence on a company’s decisions and to determine its activities falls within the scope of the freedom of establishment (which cannot be invoked by investors from third countries (para. 91). By contrast, national measures that are not intended to apply only to those shareholdings which enable the holder to exert a definite influence on a company’s decisions and to determine its activities but which apply irrespective of the size of the holding which the shareholder has in a company falls 5

3.3

The Status of WTO Law in the EU

11

is that foreign investors can invoke the free movement of capital, if a Member State’s measure is not intended to apply exclusively to situations which concern definite influence over a company.9 However, according to EU primary law, the EU Member States—which pursuant to the TEU have sole responsibility for protecting their national security (Art. 4(2) TEU)—may restrict the free movement of capital in particular on grounds of “public policy or public security” (Art. 65(1)(b) TFEU). Moreover, they may limit this fundamental freedom in cases where other overriding legitimate interests are at stake. Thus, the Court has accepted, for example, that Member States can justify restrictions that are necessary e.g. for safeguarding the security of oil and gas supplies.10 Such measures must in particular be proportionate to the aim pursued.11 Importantly, the ECJ has made it clear that it is prepared to exercise increased deference in cases involving transactions with third countries.12 Furthermore, Art. 346(1)(b) TFEU stipulates that EU Member States may take such measures as they consider necessary for the protection of essential interests of their national security which are connected with the production of or trade in arms, munitions and war material.13

3.3

The Status of WTO Law in the EU

As indicated above, WTO law, like other international agreements concluded by the EU with third states, forms an integral part of EU law.14 It ranks between EU primary and secondary law and must, therefore, be complied with by the EU institutions and the EU Member States not only as a matter of international law, but of EU law, too. Likewise, EU law must be interpreted in conformity with WTO law. As recently emphasized by the ECJ, the interpretation of WTO law by WTO panels and the WTO Appellate Body must also be taken into account by the EU institutions and EU Member States.15

within the scope of both fundamental freedoms (CJEU, case C-212/09, Commission v. Portugal, ECLI:EU:C:2011:717 para. 44). 9 See e.g. de Kok (2019), p. 29; for an extensive analysis of the ECJ’s case law cf. Vranes (2022), p. 104 ff. 10 Cf. de Kok (2019), pp. 24 ff with further references. 11 Furthermore, they must in particular be transparent, based on objective, non-discriminatory criteria and subject to judicial review (cf. Vranes (2022), p. 103 with further references). 12 On this cf. Vranes (2012), pp. 658 ff; Herrmann (2019), p. 451 ff; de Kok (2019), p. 32. 13 See also Bohnert (2022), p. 22; de Kok (2019), p. 32. 14 CJEU, case 181/73, R. & V. Haegeman v. Belgian State, ECLI:EU:C:1974:41, paras. 5–6; on this and the following see also Eeckhout, p. 327; Koutrakos (2015), p. 209. 15 CJEU, case C-66/18, Commission v. Hungary, ECLI:EU:C:2020:792, para. 92.

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Investment Screening in the EU

Although the ECJ has persistently taken the view that GATT/WTO law cannot be directly applied in the EU legal order16 and although the ECJ has also found that Member States cannot challenge the validity of EU secondary law in annulment proceedings on the basis of WTO law either,17 the Court has held that it may hear enforcement cases, brought by the EU Commission against EU Member States, for their failure to comply with obligations arising under the GATT/WTO framework.18 This approach has recently been confirmed in a case specifically concerned with investment screening measures instituted by Hungary (the so-called “lex CEU” case).19 This case, which was handed down just 5 days before the EU Screening Regulation entered into force, underlines that WTO law can, in addition to the Screening Regulation, be used as a yardstick for scrutinizing national investment screening mechanisms in proceedings before the ECJ. In the next section, we will outline the main principles of this Regulation as well as the example of the Austrian Act on Investment Screening which implements this Regulation, before we move on to examine their interplay with WTO law in more detail.

16 See the extensive analyses by Eeckhout (2011), pp. 300 ff and 331–355; and Koutrakos (2015), pp. 280 ff. Due to the CJEU’s stance, private persons and companies cannot normally invoke WTO law in the EU. There are two well-known exceptions to this principle: the ECJ will scrutinise an EU measure as to their conformity with WTO law, if the measure explicitly refers to WTO law or has been enacted in order to comply with an obligation arising under WTO law (see CJEU, case 70/87, EEC Seed Crushers’ and Oil Processors’ Federation (FEDIOL) v. Commission of the European Communities EU:C:1989:254, para.19–22; and Case C-69/89 Nakajima All Precision Co. Ltd v. Council of the European Communities, ECLI:EU:C:1991:186, paras. 28 ff; on this see e.g. Koutrakos (2015), pp. 301 ff). On all of this see this see e.g. Koutrakos (2015), pp. 280 ff and pp. 301 ff; Griller (2000), pp. 441–472. 17 CJEU, case C-280/93, Federal Republic of Germany v. Council of the European Union, ECLI: EU:C:1994:367, para. 110. 18 CJEU, case C-61/94, Commission v. Germany, ECLI:EU:C:1996:313, para. 2. 19 This case has dealt with an amendment to the Hungarian Law on Higher Education, according to which a foreign higher education institution was only permitted to offer teaching services leading to a qualification in Hungary, if two conditions were fulfilled: first, higher education institutions established outside the European Economic Area (EEA) was not allowed to offer education leading to a qualification in Hungary, unless an international treaty on fundamental support for the activities in Hungary had been concluded between the Government of Hungary and the government of the State in which the foreign higher education institution has its seat. Secondly, a foreign higher education institution carrying on activities in Hungary had to be a State-recognized higher education institution in the country in which it had its seat and had also to “genuinely offer higher education” in that country. Since the Central European University (CEU), which had been founded by George Soros and had its seat in the US, was the only university in Hungary which did not fulfil these requirements at the time when this amendment entered into force, the latter has also been referred to as a “lex CEU”. CJEU, case C-66/18, European Commission v. Hungary, ECLI:EU: C:2020:792. For an analysis of this case cf. Vranes (2021), pp. 699 ff; Nagy (2020); Bornemann (2020); Traudt (2020).

3.4

The EU Screening Regulation Outlined

3.4 3.4.1

13

The EU Screening Regulation Outlined Basic Principles

The EU Screening Regulation has been enacted on the basis of the EU’s Common Commercial Policy (Art. 207 TFEU). Hence, while Art. 207 TFEU has served as the relevant legislative competence for enacting the framework for national investment screening mechanisms in the EU, the limits to such screening activities are in particular to be found in Art. 65(1)(b) TFEU20 and relevant commitments in international economic law, especially WTO law as an integral part of EU law. Already in its third recital, the Regulation refers to the commitments undertaken by the EU and its Member States in the WTO, emphasizing that the Union and its Member States may adopt restrictive measures relating to FDI on the grounds of “security or public order”. As has been noted in the literature in this regard,21 this third recital does not employ the term “public policy or public security”, which is to be found in Art. 65(1)(b) of the TFEU, but first emphasizes the relevance of WTO law as a an interpretative guideline. A reference to the EU term “public policy or public security” occurs only in the next recital (Recital 4); this recital underlines that the Regulation is without prejudice to the right of EU Member States to restrict the free movement of capital provided for in Art. 65(1)(b) TFEU. The preamble then refers to further aims of the Regulation, namely to “provide legal certainty for Member States’ screening mechanisms on the grounds of security and public order, and to ensure Union-wide coordination and cooperation on the screening of foreign direct investments likely to affect security or public order” (Recital 4). Furthermore, Recital 35 emphasizes that “[t]he implementation of this Regulation by the Union and the Member States should comply with the relevant requirements for the imposition of restrictive measures on grounds of security and public order in the WTO agreements, including, in particular, Art.XIV(a) and Art.XIVbis” of the GATS. Turning to the operative provisions, the Regulation first makes it clear that it is meant to establish a framework for the Member States’ investment screening activities and to provide for a mechanism for cooperation between the Member States (as well as between the Member States and the Commission) regarding FDI that is “likely to affect” security or public order. As will be seen in the following, the term “likely to affect” causes a series of questions as regards its relationship to

20

de Kok (2019), pp. 24 ff; Bohnert (2022), pp. 31 ff; cf. also Bohnert (2020), pp. 99–125 ff; on the roles of Art. 207 and 63 ff TFEU see also Schill (2019), pp. 115 ff. According to Art. 65(1)(b) TFEU, EU Member States retain the right “to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxation and the prudential supervision of financial institutions, or to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information, or to take measures which are justified on grounds of public policy or public security” (emphasis added). 21 On this and the following see in particular Velten (2020), pp. 7 ff.

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corresponding, but arguably stricter requirements in WTO law.22 The Regulation also recalls that the Member States, having sole responsibility for their national security, may decide whether or not to screen FDI.23 For the purposes of the Screening Regulation, “screening” is defined as “a procedure allowing to assess, investigate, authorize, condition, prohibit or unwind foreign direct investment”.24 While the Regulation defines FDI,25 it does not set forth harmonized or quantitative thresholds that trigger screening.26 Furthermore, the Regulation does not limit screening to any sectors27 and defines “screening decisions” as measures “adopted in application of a screening mechanism”,28 which arguably comprises agreements between a host country and an investor that subject investments to conditions under national law29 (as will be seen, such agreements may come under the purview of WTO law, too30). Moreover, the Regulation does not apply to intra-EU FDI, even though intra-EU investors may e.g. have questionable links to foreign state-owned enterprises.31 According to Art. 3, a central provision of the Regulation, relevant national rules, including procedures and timeframes, must be transparent and must not discriminate between third countries. For these transparency reasons, the Member States must also set out the “circumstances triggering screening, the grounds for screening and the applicable detailed procedural rules”. Confidential information must be protected, and it must be possible for foreign investors to “seek recourse” against national screening decisions. Furthermore, Member States that have a screening mechanism in place must prevent the circumvention of their screening measures.32 The Regulation does not, however, provide details as to how this is to be achieved.33 Art. 4 sets forth a non-exhaustive list of factors that may be taken into account by the Member States and the EU Commission in assessing whether a given FDI is “likely to affect” security or public order. This list comprises critical infrastructure (including e.g. energy, transport, water, health, defense, electoral or financial 22

See below, Sects. 4.4.2.1, 5.3. Art. 1(1) through 1(3) of the Screening Regulation. 24 Art. 2 point (3) of the Screening Regulation. 25 “‘foreign direct investment’ means an investment of any kind by a foreign investor aiming to establish or to maintain lasting and direct links between the foreign investor and the entrepreneur to whom or the undertaking to which the capital is made available in order to carry on an economic activity in a Member State, including investments which enable effective participation in the management or control of a company carrying out an economic activity” (Art. 2(1)). 26 Voland and Slobodenjuk (2020), pp. 39 ff. 27 See also de Kok (2019), pp. 39 ff. 28 Art. 2 point (6) of the Screening Regulation. 29 Voland and Slobodenjuk (2020), Art. 2, para. 7. 30 See below, Sects. 4.1, 4.2.1. 31 See again de Kok (2019), pp. 39 ff. This, too, may raise concerns under WTO law (cf. below, Sect. 4.4.2.2). 32 On this problem of circumventions in the internal market see supra, Sect. 3.1. 33 Art. 3(5) of the Screening Regulation. 23

3.4

The EU Screening Regulation Outlined

15

infrastructure), critical technologies and dual use items (including e.g. cybersecurity, defense, energy storage and nuclear technologies), supply of critical inputs as well as food security; sensitive information and the freedom and pluralism of the media. This listing shows that the concept of “security or public order” as defined in the EU Screening Regulation stretches well beyond the traditional concept of “national security”. While this is in line with recent trends in many states,34 there remains the question whether this broad understanding is in line with relevant WTO disciplines.35 Furthermore, Art. 4 adds that in determining whether a given investment is likely to affect security or public order, account may be taken in particular of “whether the foreign investor is directly or indirectly controlled by the government, including state bodies or armed forces, of a third country, including through ownership structure or significant funding”.36 Art. 5 lays down annual reporting commitments of the Member States and the EU Commission. However, this does not encompass an obligation to publish individual screening decisions. Arts. 6 through 8 establish a mechanism for cooperation in relation to FDI. Art. 6 deals with the situation where an FDI is undergoing screening in a given Member State. The latter must notify the Commission and the other Member States of this FDI. Where a Member State that considers that an FDI undergoing screening in another Member State is likely to affect its security or public order, it may provide comments to the Member State where the screening is taking place. Additionally, the Commission may issue opinions to a Member State undertaking a screening. The aforementioned comments and opinions shall normally be sent to the Member State undertaking the screening within 35 days. The final screening decision is to be taken by the Member State where the screening is taking place. Art. 7 addresses the constellation where the Commission or a Member State considers that an FDI that is planned or completed in another Member State, but is not screened in the latter Member State, is likely to affect its security or public order. In this type of situation, a similar procedure as under Art. 6 applies. Art. 8 envisages the situation where foreign direct investments are likely to affect projects or programs of Union interest. Such projects and programs are defined as such ones that “involve a substantial amount or a significant share of Union funding, or which are covered by Union law regarding critical infrastructure, critical technologies or critical inputs which are essential for security or public order”.37 They are set out in an Annex to the Regulation which includes e.g. the European satellite navigation systems, the Trans-European Networks for Transport, Energy and Telecommunications, and the European Defense Industrial Development Programme. Where the Commission considers that one of these projects or programs is likely to be affected by an FDI, it may issue an opinion to the Member State where the FDI is

34

Dimitropoulos (1999), p. 3; Bohnert (2022), pp. 10 ff, 52. See infra, Sect. 4.4.3. 36 Art. 4(2)(a) of the Screening Regulation. 37 Art. 8(3) of the Screening Regulation. 35

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planned or has been completed. The Member State concerned “shall take utmost account” of the opinion and shall provide an explanation to the Commission if it does not follow its opinion. This type of procedure, which is known from other fields of EU law and is usually referred to as a “comply or explain”-mechanism, is commonly regarded as constituting soft law.38

3.4.2

Central Concepts: “Likely to Affect. . .Security or Public Order”

Before we move on to examine the implementation of the Regulation in national law, it seems apposite to briefly point to relevant discussions in the literature regarding the Regulation’s aforementioned core concepts of “security or public order” and “likely to affect”, which are central to the functioning of the Regulation and its interplay with WTO law. As explained above, an FDI project that is “likely to affect” a Member State’s “security or public order” can trigger screening. First, there is a discussion as to whether the Regulation “harmonizes” or “restricts” the permissible screening grounds to security and public order.39 On the one hand, it is theoretically possible that EU secondary law restricts the grounds under which a restriction of an EU fundamental freedom—like the free movement of capital in our context—can be justified. On the other hand, however, it has rightly been submitted that in particular the non-exhaustive definition (or rather: illustration) of the concepts of “security or public order” in Art. 4 of the Regulation militate against understanding this definition as excluding other grounds on the basis of which restrictions of the free movement of capital could be justified. Rather, as submitted by Bohnert and others, Art. 4 should be read as “neither broadening nor limiting” the available grounds for restricting the free movement of capital vis-à-vis third countries.40 As already indicated above, this raises the question as to whether impediments to trade and investment stemming from screening for such other grounds are compatible with WTO law.41 Secondly, while it is correct that the terms “public policy” and “public security” in Art. 65(1)(b) TFEU are concepts of EU law that have to be interpreted in line with

As will be explained below, such mechanisms too may be caught by WTO law (see infra, Sects. 4. 2.4, 5.1). 39 See e.g. Fassion and Natens (2020), pp. 128 ff, who argue that the Commission’s proposal for Screening Regulation was meant to limit the permissible grounds for screening; see also Dimitropoulos (1999), pp. 23–24. 40 Cf. Bohnert, who argues that EU Member States “may still – within the confines of the EU Treaties – decide for themselves on which grounds to rely on and draw inspiration from the Screening Regulation’s list of factors, subject to the EU institutions’, particularly the Court’s, scrutiny” (Bohnert (2022), pp. 60–61 with further references). On this see also e.g. Klamert and Bucher (2021), pp. 335 ff. 41 On this see below, Sects. 4.4.1.1, 4.4.1.2. 38

3.5

National Implementation: The Example of Austria

17

the ECJ’s “autonomous interpretation” of EU law, this does not necessarily mean that the concept of “security or public order”, which appears in the Regulation, has to be interpreted exclusively in line with the ECJ’s jurisprudence on Art. 65(1)(b), as is often implied in the literature: As indicated, the Regulation repeatedly refers to WTO law as relevant context, which arguably implies that WTO law provides legally relevant points of reference, too. We will deal with this question below.42 A similar issue arises regarding the “nexus” between a given FDI project and “security or public order” concerns. When an EU Member State intends to restrict the free movement of capital in intra-EU contexts, the ECJ requires that such transfer of capital poses a “genuine and sufficiently serious threat to a fundamental interest of society”.43 By contrast, the Screening Regulation repeatedly, and quite consistently, refers to FDI projects that are “likely to affect” a Member State’s national security or public order. This divergent wording has also prompted an academic discussion as to whether the Regulation has lowered the threshold for justifying the restrictive effects of national FDI screening. The present contribution does not seek to go into detail regarding this discussion, to the extent it is confined to arguments derived from the TFEU and ECJ rulings on the one hand and the wording of the Regulation on the other hand.44 Rather, it will once again draw attention to corresponding standards in WTO law, which may prove relevant also as a matter of EU law, not least since the Court has reminded the Member States in the aforementioned “lex CEU” case that EU law must be interpreted in the light of relevant principles of WTO law and pertinent interpretations arrived at in decisions in WTO dispute settlement.45

3.5

National Implementation: The Example of Austria

The EU Screening Regulation leaves ample room for Member States that decide to establish or maintain a national screening mechanism as to how such a mechanism is to be designed under national law. The 2020 Austrian Act on Investment Screening (Investitionskontrollgesetz46) may serve as an instructive example, not least for the (practical) reason that the number of screening proceedings that have been conducted under Austrian law in recent years is considerably higher than in other EU Member States.47 This large number may be due to the broad scope of See infra, Chap. 5. Cf. e.g. CJEU, case C-244/11, Commission v Hellenic Republic, ECLI:EU:C:2012:694, para. 33; on this see also Vranes (2022), p. 103 with further references. 44 On this discussion see e.g. Klamert and Bucher (2021), pp. 335 ff; Bohnert (2022), pp. ff with extensive further references. 45 CJEU, case C-66/18, European Commission v. Hungary, ECLI:EU:C:2020:792, para. 92. 46 Austrian Bundesgesetz über die Kontrolle von ausländischen Direktinvestitionen (Investitionskontrollgesetz), Austrian Federal Gazette BGBl. I Nr. 87/2022. 47 According to official Austrian data, in the first year since the entry into force of the Austrian Act on Investment Screening 70 proceedings had been initiated; 50 of these have been completed. 42 43

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application of the Austrian Act as well as the fact that Austria is a relatively small economy, in which “national champions” are frequently acquired by foreign companies, with Germany and Russia being the two main countries of origin of investors.48 The Austrian law has been enacted both so as to implement the EU Screening Regulation and to provide more legal certainty for investors and target companies; moreover, it has also been motivated by the concern of mitigating the risk of takeovers and supply shortages during the COVID-19 pandemic.49 Foreign direct investments coming under the Austrian Act are defined as the direct or indirect acquisition of (a) an Austrian company, (b) shares in such a company, (c) controlling influence, or (d) essential assets of such a company.50 A given FDI requires authorization by the Austrian Minister of the Economy, if the company, which is the target of an asset deal, is active in one of the sectors, deemed sensitive, that are listed in a two-part Annex to the Act (see in the following). Secondly, share deals require authorization, if relevant thresholds are exceeded: regarding target companies active in one of the sectors listed in the first part of the Annex the relevant thresholds triggering screening start at 10% of the shares; regarding other companies, the relevant thresholds are 25 and 50%.51 The Austrian Act also sets forth rules on the aggregation of shares held by different legal entities.52 These rules have been regarded as being insufficiently clear and addressing parts of the relevant problems only,53 which may raise concerns under WTO law, too.54 Thirdly, irrespective of the amount of shares acquired, an FDI resulting in controlling influence in a company requires such authorization. Fourthly, the acquisition of essential assets needs permission, if it leads to dominant influence over the respective assets of the target company.55 Paras 10–17 of the Act lay down the domestic rules that are necessary for connecting national screening procedures and the EU cooperation mechanism described above. In line with these requirements, a screening procedure under the Act should be completed within 3 months (plus potentially up to 40 days required under the cooperation mechanism established by the EU Screening Regulation).56 The first part of the aforementioned Annex exhaustively lists sectors that are regarded as particularly sensitive: It comprises defence-related products and

Taking into account the size of Austria, this is obviously constitutes a peak rate in the EU (cf. Winner (2022), p. 126 with further references). 48 On these facts see Winner (2022), pp. 123 ff with further references. 49 Winner (2022), p. 125. 50 Cf. para. 1(3) of the Act. 51 Para. 4 of the Act. 52 Para. 5 of the Act. 53 Winner (2022), pp. 139 ff. 54 Cf. below, Sects. 5.2, 5.3.1. 55 Para. 2 in conjunction with para. 4 of the Act. 56 See also Winner (2022), p. 151.

3.5

National Implementation: The Example of Austria

19

technologies, critical infrastructure, critical digital infrastructure (including e.g. 5G infrastructure), water, systems guaranteeing Austrian data sovereignty, research and development in the fields of medicines, vaccines, medical products and personal protective equipment. The second part contains an illustrative list of other sectors, in which “security or public order in the sense of Art. 52 and 65 TFEU could be endangered”. This second list refers to critical infrastructure such as energy, information technology, transport, health, data processing and storage, defence, artificial intelligence, defence technologies, energy supply and other fields. Thus, there are several overlaps between these two lists, which results in a rather unclear legal situation, which again causes concerns from the viewpoint of WTO law.57 Authorization of a given FDI may only be granted, if there are no “reasonable grounds for suspecting” that “security or public order” as defined in para. 3 of the Act is endangered.58 Pursuant to para. 3, in determining whether a concrete FDI “may affect. . .security or public order including crisis preparedness and public services in the sense of Art. 52 and 65 TFEU”, regard must be had to the investment’s effects on the sectors listed in the aforementioned Annex. Three comments are apposite in this context. First, while the wording “may affect” in para. 3 mirrors that of the Screening Regulation,59 the legislative travaux refer to the more restrictive standard developed by the ECJ in cases involving the free movement of capital,60 according to which measures restricting this freedom can only be justified if there is a “genuine and sufficiently serious threat to a fundamental interest of society”.61 On the one hand, this divergent approach is somewhat confusing, and a restrictive reading of the wording “may effect”, bringing it more into line with ECJ jurisprudence, may be requisite for reasons of EU law.62 On the other hand, as has been argued with respect to the EU Regulation already, the risk nexus (“may effect”) may have to be interpreted also in the light of WTO law, which means that a stricter interpretation of the wording “may affect” may be necessary for reasons of international law.63 Secondly, in defining “security or public order”, para. 3 of the Austrian Act refers to “Art. 52 and 65 TFEU”. This reference, which merely points to EU law, risks overlooking the relevance of pertinent commitments in WTO law. Thirdly, as will be explained below, since the EU Commission has published guidelines that may be significant in the interpretation of the requirements laid down

57

See also Winner (2022), p. 129; Madner and Mayr (2020), pp. 220 ff. Para. 7 of the Act (“kein begründeter Verdacht einer Gefährdung der öffentlichen Sicherheit und Ordnung“). 59 Cf. above, Sect. 3.4.2. 60 ErlRV 240 BlgNR 27. GP, p. 3; dazu Adler (2020), p. 855; Winner (2022), pp. 144–145 with further references. 61 Cf. above, Sect. 3.4.2. 62 Bohnert (2022), p. 61; concurring: Winner (2022), p. 145. 63 See below, Sect. 5.3.1. 58

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in the EU Screening Regulation and national law,64 these guidelines may become relevant under WTO law, too.65

References Adler G (2020) Das Investitionskontrollgesetz. Überprüfung ausländischer Direktinvestitionen in Österreich ecolex:852–856 Bohnert S (2020) EU-Investitionskontrolle – Kompetenzrechtliche Voraussetzungen und Grenzen. In: Becker M et al (eds) Gesellschaftliche Herausforderungen – Öffentlich-rechtliche Möglichkeiten. Jan Sramek Verlag, Wien, pp 99–125 Bohnert S (2022) EU investment screening: a roadblock in a one-way street? In: Winner M (ed) Kontrolle ausländischer Direktinvestitionen in Mittel- und Osteuropa. Facultas, Vienna, pp 9–97 Bornemann J (2020) Academic freedom in illiberal times, 21/10/2020, available via European Law Blog, https://europeanlawblog.eu/2020/10/21/academic-freedom-in-illiberal-times-a-bitter sweet-victory-for-the-central-european-university De Kok J (2019) Towards a European framework for foreign investment reviews. Eur Law Rev 44(1):24–48 Dimitropoulos G (1999) The role of investment screening mechanisms, 01/12/1999, available via SSRN, https://ssrn.com/abstract=3538735 Eeckhout P (2011) EU external relations law, 2nd edn. Oxford University Press, Oxford Fassion J, Natens B (2020) The EU proposal for FDI control: the WTO on the sidelines? In: Bourgeois JHJ (ed) EU framework for foreign direct investment control. Wolters Kluwer, Alphen an den Rijn, pp 121–134 Griller S (2000) Judicial enforceability of WTO law in the European Union. J Int Econ Law 3(3): 441–472 Herrmann C (2019) Europarechtliche Fragen der deutschen Investitionskontrolle. Zeitschrift für europarechtliche Studien 22(3):429–475 Klamert M, Bucher S (2021) Investment screening in der EU. Europäische Zeitschrift für Wirtschaftsrecht 32:335–342 Koutrakos P (2015) EU international relations law. Bloomsbury, London Madner V, Mayr S (2020) Das neue Investitionskontrollgesetz. J Rechtspolit 28(4):220–233 Nagy CI (2020) Using GATS to protect academic freedom in the European Union, 20/11/2020, available via Verfassungsblog, https://verfassungsblog.de/the-commissions-al-capone-tricks/ Schill SW (2019) The European Union’s foreign direct investment screening paradox: tightening inward investment control to further external investment liberalization. Legal Iss Econ Integr 46(2):105–128 Snell J (2019) EU foreign direct investment screening: Europe qui protège? Eur Law Rev 44:137– 138 Traudt D (2020) Der EuGH als regionaler Ersatz für den Appellate Body der WTO? 20/04/2020, available via http://jean-monnet-saar.eu/?page_id=2490 Velten J (2020) The investment screening regulation and its screening ground “Security or Public Order”: how the WTO law understanding undermines the regulation’s objectives, available via https://repository.graduateinstitute.ch/record/298429?_ga=2.7440050.1223939625.166660414 9-2031466909.1666604148. Accessed 24 Oct 2022

Winner (2022), p. 145; cf. European Commission, Guidance to the Member States concerning foreign direct investment, C(2020) 1981 final. 65 See infra, Sect. 5.1. 64

References

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Voland T, Slobodenjuk D (2020) EU VO 2019/452 [=commentary on the EU investment screening regulation]. In: Krenzler HG, Herrmann C, Niestedt M (eds) EU-Außenwirtschafts- und Zollrecht, 16th instalment. C.H. Beck, München Vranes E (2012) State measures protecting against 'Undesirable' foreign investment. Zeitschrift für öffentliches Recht 67:639–677 Vranes E (2021) Enforcing WTO/GATS law and fundamental rights in EU infringement proceedings. Maa J Eur Comp Law 28(5):699–713 Vranes E (2022) EU-Grundfreiheiten und mitgliedstaatliche Investitionskontrolle. In: Winner M (ed) Kontrolle ausländischer Direktinvestitionen in Mittel- und Osteuropa. Facultas, Vienna, pp 99–119 Winner M (2022) Kontrolle ausländischer Direktinvestitionen in Österreich. In: Winner M (ed) Kontrolle ausländischer Direktinvestitionen in Mittel- und Osteuropa. Facultas, Vienna, pp 121–175

Chapter 4

WTO Disciplines Relevant for Investment Screening

While several WTO agreements are relevant for investments, the GATT, the GATS, and the TRIMs Agreement are the ones setting forth those disciplines that are primarily significant for investments in general and investment screening in particular.1 In the following, these obligations will be analysed.

4.1

The Limited Scope of the TRIMs Agreement

The principles laid down in the TRIMs Agreement can be traced back to a first leading case in fact dealing with investment screening, i.e. the 1984 GATT panel report in Canada—Foreign Investment Review Act (FIRA), which has remained important for WTO law until today.2 This case dealt with a Canadian investment policy according to which the Canadian government entered into agreements with foreign investors which inter alia required the latter to give preference to the purchase of Canadian goods over imported products as inputs in the production of goods produced in Canada. Since this practice resulted in less favourable treatment of imported products, it was found to violate Art. III:4 of the GATT. Hence, this panel report in particular clarified that state measures that are meant to regulate investments, but which also—perhaps inadvertently—affect trade in goods (trade-

1

Furthermore, the WTO Government Procurement Agreement (which e.g. prohibits that suppliers are accorded less favourable treatment on the basis of foreign affiliation or ownership), the Agreement on Subsidies and Countervailing Measures (which is relevant e.g. in the case of undue incentives) and the TRIPS Agreement (which facilitates foreign investments by protecting intellectual property rights) are clearly relevant for foreign investments. Cf. e.g. Eberhard et al. (2021), p. 88. 2 Hence, we will also come back to this Report several times in the following sections. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 E. Vranes, Investment Screening and WTO Law, SpringerBriefs in Law, https://doi.org/10.1007/978-3-031-46724-0_4

23

24

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related investment measures, or TRIMs for short) come under the scope of the GATT, in principle.3 Building on this insight, the TRIMS Agreement was negotiated in the 1986–1994 Uruguay Round. However, due to divergent interests of the negotiating parties, the TRIMs Agreement’s substantive disciplines hardly go beyond the findings of the FIRA ruling: Art. 2 merely confirms that TRIMs must not be inconsistent with Arts. III or XI of the GATT. According to Art. 3 of the TRIMs Agreement, all exceptions that are available under the GATT, such as the GATT’s “general exceptions” clause (Art. XX) and its “security exceptions” provision (Art. XXI), also apply to the TRIMs Agreement. Furthermore, an Annex to the TRIMs Agreement provides an Illustrative List of measures that are deemed per se inconsistent with Arts. III or XI, respectively. Overall, however, the scope of application of the TRIMS Agreement is more restrictive than that of the GATT, as it predominantly merely confines itself to confirming the GATT’s relevance for investment regulations that affect trade in goods.4 Consequently, we will focus on the corresponding rules in the GATT and further principles that are relevant for investment screening in the following.

4.2 4.2.1

GATT Disciplines Relevant for Investment Screening National Treatment (Art. III:4)

According to Art. III:4 of the GATT, imported products must receive “treatment no less favourable” than like domestic products in respect of all national measures “affecting their internal sale, offering for sale, purchase, transportation, distribution or use”. According to the WTO Appellate Body, it follows from the wording measures “affecting” imported products that any regulatory measures come under the scope of this provision which potentially modify the competitive opportunities to the detriment of imported products vis-à-vis like domestic goods. It is not necessary, therefore, to show that a state measure—like investment screening—has an actual trade effect.5 It follows, furthermore, that Art. III:4 applies to procedural measures and also measures such as agreements between economic operators and a host state, if there is a sufficient nexus between private action and the state, such as state (dis-)

3

Panel Report, Canada—FIRA, paras 5.4–5.12. For an analysis of the TRIMs Agreement see also Weiß et al. (2022), pp. 316 ff; Civello (1999), pp. 97 ff; Quillin (2003), pp. 875 ff. 5 Cf. e.g. Appellate Body Report, US—Foreign Sales Corporations (Recourse to Art.21.5), WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I, p. 55, paras 207 ff with further references; regarding this and the following cf. in particular Van den Bossche and Zdouc (2022), pp. 378–380 and 414 ff; Vranes (2009a), pp. 226 ff. 4

4.2

GATT Disciplines Relevant for Investment Screening

25

incentives for private investors to adopt a given conduct.6 Hence, as had been found already in the aforementioned FIRA case, trade-related investment measures like investment screening—and associated conditions imposed on investors e.g. in agreements between the screening authority and an investor—can fall under Art. III:4.7 According to recent WTO rulings, measures coming under the aforementioned Illustrative List in the TRIMs Agreement are deemed per se inconsistent with Art. III:4; vice versa, trade-related investment measures that violate Art. III:4 of the GATT are automatically deemed inconsistent with the TRIMs Agreement.8 Furthermore, it has been held in the FIRA case that Art. III:4 also applies to measures that are adopted in “isolated cases”, which is important for investment screening decisions dealing with individual investment projects.9 If a given state measure is found to potentially affect trade in products in the sense just outlined, then it must next be determined, under Art. III:4, whether the imported and domestic products are “like products”. In this regard, the WTO Appellate Body has found that whether two products are to be regarded as “like products” depends on the degree of the competitive relationship between these products. Relevant indicators of such a relationship are, in particular, the physical properties of the products, their end-uses, consumers’ tastes and habits, and the international tariff classification of the products at issue.10 Furthermore, it must be determined whether the imported products at issue receive “less favourable treatment”. This standard, which had given rise to intense academic discussions in the early years of the WTO, has meanwhile been clarified in WTO jurisprudence.11

6

On all of this see Van den Bossche and Zdouc (2022), pp. 416 ff with further references to relevant WTO case law. 7 Panel Report, Canada—FIRA, paras 5.12 and 6.1. 8 See the WTO Panel Report, India—Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/R, adopted 14 October 2016 (hereinafter Panel Report, India—Solar Cells), para. 7.54 and Appellate Body Reports, Brazil—Certain Measures Concerning Taxation and Charges, WT/DS472/AB/R and WT/DS497/AB/R, adopted 11 January 2019, para. 5.79, respectively; on this see also Van den Bossche and Zdouc (2022), p. 420; and Weiß et al. (2022), pp. 319–320. 9 Panel Report, Canada—FIRA, para. 5.5.; Van den Bossche and Zdouc (2022), p. 418. 10 Cf. Appellate Body Report, European Communities—Measures Affecting Asbestos, WT/DS135/ AB/R, adopted 5 April 2001, DSR 2001:VII, p. 3243, paras 101 ff; on this see also Vranes (2009a), pp. 191 ff. 11 Regarding this requirement, the Appellate Body itself has summarized relevant case law under Art. III:4 in the following manner: (i) the requirement of not according less favourable treatment of imported products calls for effective equality of competitive opportunities between domestic and like imported products; (ii) a formal difference in treatment is neither necessary nor sufficient to establish less favourable treatment; (iii) the implications of a contested measure for the equality of competitive conditions between domestic and like must be assessed; (iv) there has to be a “genuine relationship” between the contested measure and the detrimental impact on competitive conditions for imported products. Cf. Appellate Body Report, European Communities—Seal Products, WT/DS400/AB/R and WT/DS401/AB/R, adopted 18 June 2014, DSR 2014:I, p. 7, para. 5.101. Furthermore, it has been clarified that additional administrative burdens on imported products may amount to less favourable treatment. On all of this cf. again Van den Bossche and Zdouc (2022), pp. 433 ff with further references.

26

4.2.2

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WTO Disciplines Relevant for Investment Screening

Quantitative Restrictions and Related Measures (Art. XI:1)

Art. XI:1 of the GATT lays down a general prohibition on quantitative restrictions and related measures,12 which is also directly relevant for trade-related investment measures.13 Pursuant to WTO jurisprudence, the scope of Art. XI is comprehensive and extends beyond quantitative restrictions in a strict sense, as it applies to all measures other than measures taking the form of duties, taxes or other charges14; also, it is not necessary that such measures are administered at the border.15 Moreover, it suffices that such a measure has the effect of limiting the competitive opportunities available to imports.16 Hence, it has been observed that measures, which are “capable of impeding trade, directly or indirectly, actually or potentially” could come within the broad category of quantitative restrictions.17 Therefore, and this again is important for investment screening, it has e.g. been found that measures affecting investment plans come under the purview of Art. XI.18 Furthermore, Art. XI:1, just as Art. III:4, has been interpreted as applying to individual decisions,19 a stance which has been taken in WTO dispute settlement practice also with respect to investment screening in particular.20

4.2.3

Most-Favoured-Nation Principle (Art. I)

Art. I of the GATT contains the most-favoured-nation clause, which requires that advantages granted to any products originating in any other country shall be extended immediately and unconditionally to like products originating in other 12 According to Art. XI, “[n]o prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas...or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party” (emphasis added). 13 This relevance is also underlined by Art. 2.1 of the TRIMs Agreement, according to which traderelated investment measures must not be inconsistent with Art. XI of the GATT. 14 Cf. Van den Bossche and Zdouc (2022), p. 525 with further references. 15 On all of this cf. the Panel Report, EU—Energy, para. 7.975 with further references to WTO case law. 16 Such effects need not be quantified, but can be demonstrated through the design, architecture and revealing structure of the measure at issue” (cf. the Panel Report, EU—Energy, para. 7.982 with further references). 17 Choukroune and Nedumpara (2022), p. 102. 18 Cf. the Panel Report, Panel on Japanese Measures on Imports of Leather, 15 May 1984, L/5623, paras. 47–48, 53, 55. 19 Cf. the Panel Report, EU—Energy, para. 7.976. 20 Cf. the Panel Report, EU—Energy, para. 7.981 with reference to statements by the EU and Russia.

4.2

GATT Disciplines Relevant for Investment Screening

27

WTO Members. As for the state measures covered by Art. I, reference can be made to the preceding comments on Art. III, given that Art. I explicitly refers to Art. III:4 in this regard. Furthermore, similarly to Art. III, Art. I requires an examination as to whether the goods at issue are “like products” as well as an analysis as to whether their differential treatment amounts to (de jure or de facto) discriminatory treatment. Both requirements have been interpreted under Art. I in manner analogous to Art. III in WTO jurisprudence and the academic literature.21 Therefore, reference can be made, in this regard as well, to the preceding section on Art. III.22 Art. I is of particular significance for investment screening, as screening mechanisms often de jure or de facto condition the admission of investors on their country of origin, by e.g. requiring scrutiny as to whether an investor is connected to or controlled by a foreign government.23

4.2.4

Transparency and Publication Requirements (Art. X)

As is emphasized in the literature, lack of transparency frequently constitutes an important trade barrier; this is why Art. X of the GATT sets out a series of information, publication and transparency requirements that WTO Members must comply with.24 These requirements are especially relevant for investment screening, not least because screening procedures have been described as habitually having a “black box” character, risking to lead to unpredictable outcomes.25 It is conspicuous, in this regard, that a central provision of the EU Screening Regulation (Art. 3)26 seems to be clearly concerned with ensuring that the EU Member States comply with corresponding transparency requirements.27 Pursuant to Art. X:1 “[l]aws, regulations, judicial decisions and administrative rulings of general application...pertaining to...requirements, restrictions or prohibitions on imports...shall be published promptly in such a manner as to enable governments and traders to become acquainted with them”. As clarified in WTO

21

Cf. Van den Bossche and Zdouc (2022), pp. 348 ff regarding WTO case law; see also Vranes (2009a), pp. 215 ff regarding academic views. 22 Cf. above, Sect. 4.2.1. 23 An example is Art. 4(2) of the EU Screening Regulation, which cites the criterion of whether an investor is “directly or indirectly controlled” by foreign governments as a factor relevant for determining whether an investment is likely to affect security or public order. On this see also below, Sects. 4.4.1, 4.4.2.2 and 5.3.1. 24 On this and relevant case law cf. Van den Bossche and Zdouc (2022), pp. 544 ff; see also Delimatsis (2007), pp. 13 ff; note that the 2017 Trade Facilitation Agreement contains further details, see Weiß, Ohler and Bungenberg (2022), pp. 183–184, 195 ff. 25 Cheng (2021), p. 565. 26 See above, Sect. 3.4. 27 The particular relevance of Art. X for EU investment screening is also emphasized by Fassion and Natens (2020), pp. 123 ff.

28

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dispute settlement, whether publication is “prompt” in the sense of this provision requires a case-by-case assessment.28 Moreover, measures that are not binding under national law, but have a sufficient “degree of authoritativeness” such as explanatory notes to legal acts may have to be regarded as measures falling under Art. X:1.29 Additionally, Art. X:2 requires the prior publication of measures of general application affecting trade. Legal acts applying on a retroactive basis—such as investment screening mechanisms e.g. requiring divestment on an ex post basis30—may therefore breach Art. X:2.31 Furthermore, according to Art. X:3(a), measures coming under Art. X:1 must be administered “in a uniform, impartial and reasonable manner”. Thus, this paragraph only deals with the administration of measures, not their substance. By contrast with other GATT provisions such as Arts. III:4 and XI, it applies only to measures “that apply to a range of situations or cases”, but not to “specific transactions”.32 The relevant standards of “uniform, impartial and reasonable” administration have been found to constitute three separate obligations.33 Despite this provision’s focus on administration, a legal instrument, which requires further administrative application, can as such be inconsistent with Art. X:3(a), if it “necessarily lead[s] to a lack of uniform, impartial, or reasonable administration”.34 As regards the criterion of “uniform” administration, it has been held that a system which is administered by a series of local governmental entities without central guidance risks leading to non-uniform application.35 However, it is sufficient that application is “substantially” uniform and that uniformity is achieved in a reasonable period time, so that this standard seems subject to a de minimis rule. Hence, minor differences across a Member’s territory appear acceptable, the relevant criterion being the extent to which the administration of a measure impacts on the competitive situation of imported and like domestic products.36 These requirements are clearly relevant for investment screening in a (quasi-)federal entity like the EU,

28

Cf. Van den Bossche and Zdouc (2022), pp. 544–545 (citing the Panel Reports, EC—Information Technology Products, WT/DS375/R, WT/DS376/R, WT/DS377/R, adopted 21 September 2010, DSR 2010:III, p. 933, para. 7.1074 and further case law). 29 Cf. Van den Bossche and Zdouc (2022), pp. 544–545 (citing the aforementioned Panel Reports, para. 7.1027). 30 On this cf. above, Chap. 2. 31 Van den Bossche and Zdouc (2022), p. 548 with further references. 32 Cf. the Panel Report, EU—Energy, para. 7.863; see also Van den Bossche and Zdouc (2022), pp. 549 ff. 33 Cf. the Panel Report, EU—Energy, para. 7.861 with further references. 34 Cf. Van den Bossche and Zdouc (2022), p. 551, citing the Panel Report, Colombia—Measures Relating to Textiles (Recourse to Art.21.5), circulated to WTO Members 5 October 2018, para. 7.357; see also Delimatsis (2007), pp. 13 ff; Fassion and Natens (2020), p. 131. 35 Cf. Van den Bossche and Zdouc (2022), p. 551. 36 Delimatsis (2007), pp. 13 ff with further references.

4.3

GATS Disciplines Relevant for Investment Screening

29

since the regulation of the details of investment screening mechanisms in the EU has been left to the individual Member States.37 Moreover, it has been found that “impartial” administration in the sense of Art. X:3(a) does not per se mean that government officials are excluded from serving in pertinent administrative bodies. It has also been held that excessive delays in administrative review processes may amount to “unreasonable” administration; the same holds true for administrative measures that “inherently [contain] the possibility of revealing confidential business information”.38 This, too, is evidently important for the GATT-consistent administration of investment screening mechanisms.39

4.3

GATS Disciplines Relevant for Investment Screening

The GATS provisions that are primarily relevant for investment screening mechanisms are those on MFN treatment (Art. II), market access (Art. XVI), national treatment (Art. XVII), domestic regulation (Art. VI), and the GATS’ general and security exceptions (Arts. XIV and XIVbis, respectively). In view of the comparatively complex architecture of the GATS, it seems useful to briefly recall some of its main characteristics that are especially important in our context, before we move on to discuss the aforementioned provisions.40

4.3.1

Characteristics and Scope of the GATS

According to Art. I:1, the GATS “applies to measures by Members affecting trade in services”.41 “Trade in services” encompasses four modes of supply (cross-border supply,42 consumption abroad,43 commercial presence,44 and presence of natural 37

See above, Sects. 3.4. and 3.5. Cf. Van den Bossche and Zdouc (2022) pp. 552–553 (citing the Panel Report, Argentina—Hides and Leather, WT/DS155/R, adopted 16 February 2001, DSR 2001:V, p. 1779, para. 11.94, and referring to further case law); Delimatsis (2007), pp. 13 ff. 39 Regarding investment in the EU cf. below, Sects. 4.2.4 and 5.2. 40 The overview in this and the following Section draws on Vranes (2009a), pp. 434–437 and 560–561. 41 On this cf. also Pitschas (2003), p. 495 ff; Berrisch (2003), p. 71, paras 6 ff, 27 ff, 89 ff et passim; Pauwelyn (2003), pp. 399 ff; Krajewski (2003), pp. 62–73. 42 “...from the territory of one Member into the territory of any other Member” (Art. I:2(a)). 43 “...in the territory of one Member to the service consumer of any other Member” (Art. I:2(b)). 44 “...by a service supplier of one Member, through commercial presence in the territory of any other Member” (Art. I:2(c)). Commercial presence is further defined in Art. XXVIII(d) as meaning “any type of business or professional establishment, including through 38

(i) the constitution, acquisition or maintenance of a juridical person, or (ii) the creation or maintenance of a branch or a representative office,

30

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WTO Disciplines Relevant for Investment Screening

persons45). Since this enumeration includes foreign direct investments (“commercial presence” in GATS terminology), the GATS is directly relevant for measures regulating FDI and investment screening. A “measure” in the sense of Art. I:1 encompasses “any measure by a Member, whether in the form of a law, regulation, rule, procedure, decision, administrative action or any other form”.46 As regards the wording “affecting trade in services” in Art. I:1, it ensues clearly from the travaux préparatoires that the term “affecting” was chosen on purpose by the drafters of the GATS in order to bring its scope of application in line with GATT jurisprudence, according to which the latter applies “[to] any laws or regulations which might adversely modify conditions of competition between like domestic and imported products on the internal market”.47 In other words, the GATS may even apply to a Member’s measures which do not purport to regulate trade in services, since its applicability is triggered whenever a measure merely indirectly affects such trade including investments in the sense of “commercial presence”. Some further comments are in order on the scope of the GATS as regards investments. First, the mode of “commercial presence” also includes the pre-establishment phase; moreover, the GATS as a whole makes no formal distinction between the pre- and post-establishment phases of investments.48 Thus, its scope of application is broader prima facie, in this important aspect, than that of most BITs, which typically only cover the post-establishment phase.49 In addition, it has been held in the seminal WTO Bananas proceedings that WTO Members can even bring complaints in order to protect potential providers of services (and, by implication, potential investors),50 which is of considerable import as regards the scope of the GATS in investment-related fields.51 Despite this prima facie broad scope of the GATS, there are two significant limitations: The GATS applies only in cases of majority ownership or control; it does, however, apply to measures preventing investors from obtaining majority ownership or control, which is of evident relevance for investment screening,

within the territory of a Member for the purpose of supplying a service.” 45 “...by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member” (Art. I:2(d)). 46 Art. XXVIII(a). 47 Cf. the Panel Report, EC—Bananas III, para. 7.281, referring to the Note by the Secretariat, Definitions in the Draft General Agreement on Trade in Services, GATT Doc MTN.GNS/W/139, p 4, para. xii; this jurisprudence has started with the 1958 GATT Panel Report, Italian Discrimination Against Imported Agricultural Machinery, L/833, adopted 23 October 1958, BISD 7S/60, para. 12 and was confirmed in standing GATT/WTO jurisprudence. 48 WTO, Mode 3—Commercial Presence, Background Note by the Secretariat, WTO doc. S/C/ W314, 7 April 2010, para. 9. 49 Cf. also Fassion and Natens (2020), pp. 124 ff; Adlung (2016), p. 52. 50 Cf. the Panel Report, EC—Bananas III paras 7.298 ff. 51 Cf. Zdouc (1999), pp. 325 ff; Vranes (2003), pp. 98–99.

4.3

GATS Disciplines Relevant for Investment Screening

31

too.52 Furthermore, additional Member-specific limitations ensue from the scheduling approach of the GATS. This scheduling technique makes it possible for each WTO Member to regulate the extent of the commitments it undertakes under the central substantive disciplines of the GATS: On the one hand, each WTO Member can suspend the applicability of the GATS MFN clause (Art. II) with respect to those measures which it inscribes in its country-specific list of MFN exemptions (“negative scheduling”).53 On the other hand, the GATS rules on market access (Art. XVI) and national treatment (Art. XVII) are subject to a “positive scheduling” approach, according to which every WTO Member may decide which services sectors, sub-sectors and modes of supply therein it binds, subject to possible limitations that it inscribes in its country-specific schedule of GATS commitments.54 Typical examples in the investment context are national treatment limitations relating to differential capital requirements and operational limits for foreign investors.55

4.3.2

National Treatment (Art. XVII)

If it has been established, in a concrete case, that a WTO Member has undertaken a commitment in a given GATS sector and that its measures affect trade in services (including investments in the sense of “commercial presence”), then it must be analysed, under Art. XVII, whether the foreign service suppliers in question and their services are accorded “less favourable” treatment56 than the host country’s “own like services and service suppliers”.57 52

Art. XXVIII(n)(i) and (ii). On this cf. also Fassion and Natens (2020), p. 125 and WTO, S/C/ W314, paras 9 and 13. 53 Art. 6 of the GATS Annex on Art. II Exemptions. Such exemptions “should not exceed a period of 10 years”, and are subject to negotiation in subsequent trade-liberalizing rounds. Many measures listed by Members are not actually limited in time, however (cf. Krajewski (2003), p. 120). 54 Furthermore, additional commitments which are not subject to scheduling under the GATS rules on market access and national treatment may be negotiated and shall be inscribed in the schedule of the Members undertaking such commitments (Art. XVIII of the GATS). 55 Van den Bossche and Zdouc (2022), p. 438. 56 As respects the sub-test of “less favourable treatment”, Art. XVII:3 of the GATS stipulates that directly and indirectly discriminatory treatment (“formally identical“and “formally different“treatment in the terminology of Art. XVII:2 and XVII:3 of the GATS) shall be considered as violating the national treatment obligation if it modifies the conditions of competition in favour of like domestic services or service suppliers. Additionally, Footnote 10 of the GATS makes it clear that commitments assumed by WTO Members under Art. XVII in their schedules “shall not be construed to require any Member to compensate for any inherent competitive disadvantages which result from the foreign character of the relevant services or service suppliers”. 57 Regarding the issue of “like services” and “like service suppliers”, it has been clarified in WTO dispute settlement that these terms have to be treated as an integrated concept that does not require two separate findings. Similarly to the GATT context, it is necessary to determine whether the services and services are in a competitive relationship with each other. If this relationship is close enough, then the foreign and domestic services and service suppliers have to be regarded as being

32

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As a case in point in the investment screening context, the panel in EU—Energy found that Croatia, Hungary and Lithuania had infringed Art. XVII by granting certification to foreign suppliers of pipeline transport services only if such certification would not put at risk the national security of energy supply. This has been regarded by the panel as an additional condition imposed on foreign like suppliers of energy services, which modified the conditions of competition in violation of the GATS national treatment requirement.58

4.3.3

Market Access (Art. XVI)

The second cornerstone of the GATS is its market access obligation. Pursuant to Art. XVI:1, “each Member shall accord services and service suppliers of any other Member treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule”. The measures which a Member must not maintain are defined in Art. XVI:2 as limitations on (i) the number of service suppliers; (ii) the total value of service transactions; (iii) the total number of service operations or the quantity of service output; (iv) the total number of natural persons employed; (v) the participation of foreign capital in terms of maximum percentage limit on foreign shareholding or the total value of individual or aggregate foreign investment.59 Furthermore, Art. XVI:2 prohibits measures which restrict or require specific types of legal entity or joint venture.60 These disciplines on market access differ considerably from their counterpart in Art. XI of the GATT, in that they are not only subject to the aforementioned positive scheduling approach, but also in that Art. XVI:2(a)-(e) apply even to non-discriminatory market access restrictions61; moreover, the enumeration of prohibited measures in Art. XVI:2 is exhaustive.62 Measures falling under Art. “like” each other. On this cf. Van den Bossche and Zdouc (2022), pp. 445 ff with further references; Weiß et al. (2022), p. 348 with further references. 58 Panel Report, EU—Energy, paras 7.1056 ff. 59 Art. XVI:2(a)-(d) and (f). 60 Art. XVI:2(e). 61 Cf. also WTO, Guidelines for the Scheduling of Specific Commitments, WTO doc. S/L/92, 28 March 2001, para. 8; Group of Negotiations on Services, Scheduling of Initial Commitments in Trade in Services, MTN.GNS/W/164, 3 September 1993, para. 4; and WTO Council for Trade in Services, Considerations of Issues Relating to Article XX:2 of the GATS, S/C/W/237 of 24 March 2004, Annex I, Job/03/213 of 20 November 2003); see also Pauwelyn (2003), pp. 19 ff. 62 The fact that the list in Art. XVI:2 is exhaustive has been recognized in WTO dispute settlement practice, cf. the Panel Report, United States—Gambling and Betting Services, WT/DS285/R, adopted 20 April 2005, WT/DS285/AB/R, DSR 2005:XII, p. 5797, para. 6.298; this is also confirmed in the 1993 Scheduling Guidelines, pursuant to which “[t]he list is exhaustive and includes measures which may also be discriminatory according to the national treatment standard (Art. XVII)” (cf. Group of Negotiations on Services, Scheduling of Initial Commitments in Trade in Services, MTN.GNS/W/164, 3 September 1993, para. 4); see also WTO Council for Trade in

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33

XVI need not be expressed in numerical terms; it is sufficient that a measure has effects that are equivalent to quotas.63 Arts. XVI:2(e) and XVI:2(f) have, for the first time, been addressed in the investment-related EU—Energy case, which, in addition also dealt with Art. XVI:2(a).64

4.3.4

Most-Favoured-Nation Treatment (Art. II)

Under the GATS MFN clause, it must be determined whether a given measure accords “to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country” (Art. II:1 of the GATS). As regards the criteria of “like services and service suppliers”, reference can be made to Art. XVII of the GATS, given that the WTO Appellate Body has made it clear that the same considerations apply as under Art. XVII.65 Likewise, the test of “less favourable treatment” has been interpreted in a manner virtually identical to the “less favourable treatment” standard under Art. XVII.66 As indicated above with respect to the analogous MFN clause of the GATT, the GATS MFN principle, too, is of special relevance for investment screening, given that screening mechanisms often de jure or de facto condition the admission of investors on their country of origin.67

Services, Considerations of Issues Relating to Article XX:2 of the GATS, S/C/W/237 of 24 March 2004, Annex I, Job/03/213 of 20 November 2003) para. 2. 63 Appellate Body Report, United States—Gambling and Betting Services, WT/DS285/AB/R, adopted 20 April 2005, DSR 2005:XII, p. 5663, paras 238 and 251; on this see also Van den Bossche and Zdouc (2022), p. 565. This means that it has to act “as a quota would do” and that it must be “quantitative in nature”, cf. Panel Report, China—Electronic Payment Services, WT/DS413/R and Add.1, adopted 31 August 2012, DSR 2012:X, p. 5305, paras 7.592–7.593 (focusing on Art. XVI:2(a)). 64 In this case, an EU measure requiring unbundling of economic operators in the gas sector has been regarded as not being “quantitative in nature” in the sense of Art. XVI:2(a). Furthermore, Art. XVI(e) has been interpreted as applying to measures that “restrict or require the legal form of a legal entity through which a service supplier may supply a service under the applicable law of the Member concerned”. Hence, the mere unbundling requirement was not regarded as falling under Art. XVI(e) (Panel Report, EU—Energy, paras 7.642 and 7.687). Additionally, the panel confirmed that Art. XVI(f) is concerned with discriminatory measures only; therefore, limitations on investments of capital applying to both foreign and domestic capital participation were regarded as not being covered by this provision (Panel Report, EU—Energy, paras 7.709–7.728). 65 This is because domestic services and suppliers should be regarded as like foreign services and suppliers, if they are in a sufficiently close competitive relationship. 66 Cf. also Van den Bossche and Zdouc (2022), pp. 367 ff with further references to relevant WTO dispute settlement practice. 67 On this and the example of the EU Screening Regulation cf. already above, Sect. 4.2.3.

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Transparency (Art. III) and Domestic Regulation (Art. VI)

Arts. III and VI contain a series of obligations that are of specific import for investment screening as well. The transparency principle set out in Art. III requires each WTO Member to promptly publish all measures of general application that are relevant for the operation of the GATS agreement. Art. VI, entitled “Domestic Regulation”, is the GATS counterpart of Art. X of the GATT.68 According to Art. VI:1, WTO Members must administer all measures of general application affecting trade in services in a “reasonable, objective and impartial manner”.69 Further, WTO Members must institute judicial, arbitral or administrative tribunals or procedures which provide for the prompt review of administrative decisions affecting trade in services, unless this is irreconcilable with their constitutions (Art. VI:2), and must ensure expeditious decisions on applications (Art. VI:3). Pursuant to Art. VI:4, the WTO Council for Trade in Services is mandated to develop disciplines that ensure that “measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services”. In particular, these disciplines must warrant that such requirements are (a) “based on objective and transparent criteria, such as competence and the ability to supply the service”, (b) “not more burdensome than necessary to ensure the quality of the service”, and (c) “in the case of licensing procedures, [are] not in themselves a restriction on the supply of the service”.70 Art. VI:5 remains relevant, so long as disciplines to be negotiated under Art. VI:4 have not entered into force. Art. VI:5 incorporates the requirements laid down in 68 Whereas Art. VI:2 of the GATS applies across the board, the remaining provisions of Art. VI apply solely to sectors where a Member has undertaken specific commitments. This follows from the wording of Art. VI:1, VI:3 and VI:5. Although it is disputed whether the disciplines to be developed under Art. VI:4 are meant to apply to all sectors or only to sectors where specific commitments have been undertaken, a series of arguments—in particular the context of Art. VI:4 and the wording of Art. VI:5 (“pending the entry into force of disciplines developed in these sectors [i.e. sectors with specific commitments] pursuant to paragraph 4”)—militate for the latter alternative; see Krajewski (2003), pp. 137–139. 69 On this and the following see also Delimatsis (2007), pp. 13 ff; Weiß et al. (2022), pp. 353 ff. 70 As multilateral progress on developing such disciplines has proven difficult, a series of WTO Members including the EU have tried to proceed on a plurilateral basis by elaborating a “Joint Initiative on Services Declaration”, which sets forth further disciplines which the participating WTO Members are expected to incorporate in their country-specific schedules of GATS commitments. The negotiations on this plurilateral initiative were finalized in September 2021. The text adopted serves as a reference paper setting out additional commitments to be incorporated in the GATS schedules. These draft schedules should be submitted for certification to the WTO by the end of 2022. The disciplines contained in this reference paper deal mainly with transparency and effectiveness of procedures that enterprises have to comply with in order to obtain authorization to supply their services. The disciplines are primarily designed to apply to sectors in which Members have undertaken commitments in their schedules. Cf. the information provided by the WTO at https://www.wto.org/english/tratop_e/serv_e/jsdomreg_e.htm (last accessed on 15 September 2022).

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Art. VI:4(a)–(c), thereby subjecting domestic regulations to a necessity test, which is considerably restrained, however, by the fact that Art. VI:5 makes its applicability dependent on the proof (i) that a Member’s measure could not reasonably have been expected and (ii) that specific commitments have actually been nullified or impaired.71 In sum, it follows from the disciplines laid down in Art. VI that WTO Members, when instituting investment screening mechanisms, must ensure that the rules permit reasonable, objective and impartial administration; moreover, the administrative activities themselves must live up to these standards.72 The fact that these disciplines are clearly significant for investment screening is again underlined by the EU— Energy dispute, in which Russia had inter alia challenged several EU measures under Art. VI. It was merely for reasons of judicial economy that the panel has not addressed these claims.73

4.4

Relevant Exceptions in the GATT and GATS

A measure that prima facie violates any of the GATT or GATS obligations discussed above can still be justified under the so-called “general exception” clauses of the GATT and the GATS (Arts. XX GATT and XIV GATS) and the “security exceptions” in these agreements (Arts. XXI GATT and XIVbis GATS). Since the EU Screening Regulation is meant to scrutinize investments that may affect “security or public order”,74 the clauses principally relevant are Arts. XX (d) and XX(j) of the GATT and Art. XIV(a) of the GATS on the one hand as well as Art. XXI of the GATT and Art. XIVbis of the GATS on the other hand. We will therefore focus on the requirements ensuing from these provisions in the following.

4.4.1

General Exceptions in the GATT (Art. XX(d) and Art. XX(j))

4.4.1.1

Systemic Issues

According to standing WTO jurisprudence, a WTO Member, which invokes Art. XX in order to justify a given measure, must first show that the latter falls under one of the individual paragraphs of Art. XX (i.e. paras XX(a)-XX(j)), which contain a

71

On this cf. also Weiß et al. (2022), pp. 356; Vranes (2010), pp. 967 ff. Fassion and Natens (2020), pp. 123. 73 Panel Report, EU—Energy, paras 7.1255 ff. 74 See above, Sect. 3.4. 72

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closed list of grounds of justification, and must, secondly, show that the measure also complies with the introductory paragraph of Art. XX (the so-called “Chapeau”).75 WTO adjudicating bodies appear to be prepared to adopt a broad interpretation of relevant policy goals by opting for an approach of evolutive interpretation.76 They have, however, taken a rather opaque approach to the review of both the legitimacy of the policy goal and the level of protection sought. Regarding the first issue, panels have repeatedly underlined that it is not their task “to examine generally the desirability or necessity” of the objectives of a defending WTO Member’s measures.77 Nonetheless, several decisions in fact have implicitly or explicitly reviewed the legitimacy of the policy goal pursued by determining whether a stated policy falls within one of the categories set out in the individual paragraphs of Art. XX and whether the value protected by these provisions is actually at risk in the case at issue.78 Even more controversial is the question of the review of the level of protection that a WTO Member has adopted. While panels and the Appellate Body have expressly held that establishing the appropriate level of protection of a legitimate policy goal like public security “is a prerogative of the Member concerned and not of panels or the Appellate Body”,79 the Appellate Body has nonetheless questioned the level of protection adopted by WTO Members in at least two ways. First, in the seminal Korea—Beef case, the Appellate Body did not accept the defendant’s stated level of protection of its policy goal, but re-adjusted it by drawing an “inverse” inference from the measure to the presumable level of protection against which the suitability of less restrictive alternatives was then assessed.80 Second, the 75

On this and the following cf. already Vranes (2009a) pp. 263 ff. Cf. Vranes (2009a) pp. 263–264; Weiß et al. (2022), p. 200. 77 Cf. e.g. the Panel Report, United States—Gasoline, WT/DS2/R, adopted 20 May 1996, WT/DS2/ AB/R, DSR 1996:I, p. 29, para. 7.1; similarly, the panel in US—Tuna I, para. 5.32 held that the conditions set out in XX(g) do not relate to the conservation policies pursued by a contracting party, but merely to the measures adopted in pursuit of these goals. 78 Vranes (2009a) pp. 264–265 with further references. 79 Cf. the Appellate Body Report, EC—Asbestos, para. 199; the quotation is taken from para. 199 the Appellate Body Report, Australia—Measures Affecting Importation of Salmon, WT/DS18/ AB/R, adopted 6 November 1998, DSR 1998:VIII, p. 3327, that was issued under the SPS Agreement, which according to its preamble elaborates the rules of Art. XX(b) GATT; see also Appellate Body Report, Korea—Beef, WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 2001, DSR 2001:I, p. 5, para. 176 (“It is not open to doubt that Members of the WTO have the right to determine for themselves the level of enforcement of their WTO-consistent laws and regulations”); Panel Report, United States—Section 337, para. 5.26 (“The Panel wished to make it clear that this [the obligation to choose a reasonably available GATT-consistent or less inconsistent measure] does not mean that a contracting party could be asked to change its substantive patent law or its desired level of enforcement of that law”). 80 The Appellate Body held: “[w]e think it unlikely that Korea intended to establish a level of protection that totally eliminates fraud with respect to the origin of beef (domestic or foreign) sold by retailers. The total elimination of fraud would probably require a total ban of imports. Consequently, we assume that in effect Korea intended to reduce considerably the number of cases of fraud occurring with respect to the origin of beef sold by retailers” (Appellate Body Report, 76

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Relevant Exceptions in the GATT and GATS

37

presumable level of protection has also been established by WTO adjudicating bodies themselves, when the defendant had not clearly stated the degree of protection sought.81

4.4.1.2

Art. XX(d): Compliance with GATT-Consistent Requirements

Under Art. XX(d) of the GATT, it must be shown that a measure is “necessary to secure compliance with laws or regulations which are not inconsistent” with the GATT. Art. XX(d) is important in at least two respects for the investment screening context. First, this broad formulation may open up the aforementioned closed-list character of Art. XX to some extent,82 which is important as respects investment screening undertaken for public order reasons, given that Art. XX of the GATT— unlike Art. XIV(a) of the GATS—does not contain “public order” as an explicit policy goal. Secondly, the criterion “necessary to”, which is also central to other paragraphs of Arts. XX and XXI of the GATT as well as Arts. XIV(a) and XIVbis of the GATS, has been clarified to a considerable extent in jurisprudence under Art. XX(d). Thus, the WTO Appellate Body has held that a measure for which justification is sought under Art. XX(d) must (i) be “designed to” secure compliance with the policy goal of this provision, and (ii) must be either “indispensable” or (iii) necessary to secure such compliance.83 The term “designed to” has been defined in case law as requiring that the measure must not be “incapable of” securing compliance with domestic laws or regulations that are not GATT-inconsistent, which implies a considerable degree of judicial deference.84 Furthermore, according to WTO jurisprudence, a measure need not exclusively be designed to secure compliance with a given domestic rule; it is sufficient that it has been adopted at least partially to promote compliance with such a law.85 The condition “necessary to” is determined, pursuant to the Appellate Body, by a process of “weighing and balancing” taking into account in particular a measure’s contribution to a legitimate policy goal, the importance of this goal, and the degree of a measure’s trade effect.86

Korea—Beef, para. 178 (italics added)); on this see Vranes (2009a), p. 265; Weiß et al. (2022), p. 200. 81 Vranes (2009a), pp. 265 ff. 82 Weiß et al. (2022), pp. 205–206. 83 Appellate Body Report, Korea—Beef, paras 164 ff. 84 Cf. Van den Bossche and Zdouc (2022), pp. 618 with further references. 85 Cf. Van den Bossche and Zdouc (2022), p. 619 with further references. 86 Appellate Body Report, Korea—Beef, para. 164. In the words of the Appellate Body: “[t]he more vital or important [the goals pursued] are, the easier it would be to accept as ‘necessary’ a measure designed as an enforcement instrument” (para. 162); “[t]he greater the contribution [of a measure to the goal pursued], the more easily a measure might be considered to be ‘necessary’” (para. 163; moreover, “[a] measure with a relatively slight impact upon imported products might more easily be considered as ‘necessary’ than a measure with intense or broader restrictive effects” (para. 163).

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These judicial standards have also been transferred to Art. XIV of the GATS, which will be discussed below. Moreover, as emphasized by the Appellate Body, “the analytical framework for the ‘design’ and ‘necessity’ elements of the analysis contemplated under Art. XX(d) is relevant mutatis mutandis also under Art. XX (j)”.87

4.4.1.3

Art. XX(j): Products in Short Supply

According to Art. XX(j), WTO Members can justify measures that are “essential to the acquisition or distribution of products in general or local short supply”. The considerable practical relevance of this clause is visibly underlined not least by investment screening activities meant to prevent shortages in the supply with medical products (e.g. during the Covid crisis) or energy products (e.g. during the 2022/23 gas crisis in some EU Member States). Incidentally, this clause has been invoked for the very first time in yet another investment dispute, namely the panel report in India—Solar Cells (dealing with domestic content requirements, a typical TRIM). Furthermore, it has been addressed in EU—Energy, as regards Russian investments in the EU energy sector.88 As for the requirement that the measure enacted by a WTO Member is “designed to” promote the legitimate interest at issue, the Appellate Body has held that the Member invoking Art. XX(j) merely needs to “identify the relationship” between the measure at issue and the products in short supply,89 which constitutes a very high degree of deference vis-à-vis WTO Members. With respect to the requirement that a product is in “short supply”, the Appellate Body has made it clear that it may be relevant “to consider the extent to which international supply of a product is stable and accessible”, taking into account in particular “the reliability of local and transnational supply chains”.90 The Appellate Body added that “a consideration of potential risks of disruption in supply of a given product may inform the question of whether a situation of ‘short supply’ exists”.91 These guidelines are of evident importance for possible screening activities motivated by actual or potential shortages stemming from current crises and geopolitical challenges. However, by contrast with the Appellate Body, the panel in EU—Energy seems to have taken a substantially more restrictive approach by emphasizing that supply shortages can only be assumed, if the products at issue are “presently in short

87 WTO Appellate Body Report, India—Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/AB/R, adopted 14 October 2016, DSR 2016:IV, p. 1827, para. 5.60 (hereinafter: Appellate Body Report, India—Solar Cells). 88 Panel Report, EU—Energy, paras. 7.1325 ff. 89 Appellate Body Report, India—Solar Cells, para. 5.60. 90 Appellate Body Report, India—Solar Cells, para. 5.72. 91 Appellate Body Report, India—Solar Cells, para. 5.76 (emphasis added); on all of this see also Van den Bossche and Zdouc (2022), pp. 642 ff.

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39

supply”.92 Nonetheless, the panel has, perhaps, not fully closed the door to considering risks of supply shortages, as it added that a Member seeking to demonstrate a shortage of supply must provide sufficient evidence enabling WTO dispute settlement panels to conduct a “holistic evaluation”.93 A WTO Member relying on Art. XX(j) must also prove that the measure is “essential to” deal with a shortage of supply. Referring to its aforementioned approach to the “necessity” requirement in Art. XX(d), the Appellate Body has found that “essential” has to be interpreted as coming close to “indispensable”,94 which arguably has to be understood as a rather strict necessity test applied with very reduced judicial deference. Such a reading of the term “essential” has also been adopted by the panel in EU—Energy.95

4.4.1.4

The Chapeau of Art. XX: Abuse of Rights

If it has been shown that a given measure complies with one of the individual paragraphs of Art. XX, then it must still be demonstrated that it is also in line with the Chapeau of Art. XX. In fact, most attempts to invoke Art. XX as a defence so far have failed to overcome the requirements inferred from the Chapeau in WTO jurisprudence.96 In the investment screening context, this, too, has been illustrated by the EU—Energy case, where the EU was unable to defend parts of the energyrelated investment screening activities of three of its Member States (Croatia, Hungary and Lithuania) under the Chapeau.97 According to the Chapeau, a trade measure must not be “applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade” (emphasis added). It has proven difficult to draw clear dividing lines

92

Panel Report, EU—Energy, para. 7.1348 (emphasis added); see also Van den Bossche and Zdouc (2022), p. 645. 93 Panel Report, EU—Energy, para. 7.1352. 94 Appellate Body Report, India—Solar Cells, para. 5.62. 95 The panel found that in line with the Appellate Body in India—Solar Cells, the following factors are relevant in determining whether a measure is “essential”: “(a) the extent to which the measure sought to be justified contributes to “the acquisition or distribution of products in general or local short supply”; (b) the relative importance of the societal interests or values that the measure is intended to protect; and (c) the trade-restrictiveness of the challenged measure.” Moreover, reasonable available alternative measure would have to be taken into account (Panel Report, EU—Energy, para. 7.1359). As the panel had already concluded that the EU measure at issue is not “designed to” to address “the acquisition or distribution” of the product at issue (natural gas), it restricted itself to a factual analysis that should assist the Appellate Body, if an appeal were brought against the Panel Report. Within this “factual analysis” the panel took the (debatable) view that measures that “contribute to the security of energy supply, do not necessarily contribute to the ‘acquisition or distribution’ of gas” as the energy product at issue in this case (at para. 7.1371). 96 Weiß et al. (2022), pp. 206 ff; on the following see also Vranes (2009a), pp. 278 ff. 97 Cf. Panel Report, EU—Energy, para 7.1254.

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between these three concepts based on their wording, systematic-teleological considerations and the drafting history of this provision. Rather, these interpretative efforts have resulted in the identification of a common “fundamental theme” which is that of “avoiding abuse or illegitimate use” of Art. XX.98 The Appellate Body has defined this prohibition on abuse of rights as demanding that measures “must be applied reasonably, with due regard both to the legal duties of the party claiming the exception and the legal rights of the other parties concerned”,99 which essentially means that a “balance of rights and obligations”—and thereby of trade and other concerns—must be struck under the Chapeau.100 It is of particular relevance for investment screening that the Appellate Body, firstly, has also introduced due process requirements under the criterion of “arbitrary discrimination”, specifying that measures affecting trade must allow for the formal possibility to be heard, and must comprise formal written, reasoned decisions and procedures of review. It did so, pointing out that the requirements imposed in Art. X:3 of the GATT for GATT-consistent measures must a fortiori be complied with by measures to be justified under Art. XX.101 Secondly, the Appellate Body has inferred consistency requirements from the Chapeau, according to which WTO Members must apply their measures consistently, which in particular requires equal treatment of all trading partners.102

4.4.2

General Exceptions in the GATS (Art. XIV)

Similarly to the GATT, the GATS contains a general exception clause in Art. XIV. This provision has evidently been modelled after Art. XX of the GATT, as it is structured in an analogous manner: hence, a WTO Member invoking Art. XIV of the GATS must first show that its measure complies with one of paragraphs (a)–(e) of Art. XIV, which set out relevant policy goals as grounds of justification; secondly, the Member bears the burden of demonstrating that the criteria of the Chapeau of Art. XIV—which is textually identical to Art. XX of the GATT in relevant part—are fulfilled. As indicated above, Art. XIV(a) is of particular significance for investment screening activities, which are often undertaken for public order reasons, given that this provision makes it possible to justify restrictive measures that are “necessary. . .to maintain public order”. This relevance is also underlined by the

98

Appellate Body Report, United States—Gasoline, WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, p. 3, p. 22. 99 Ibidem, p. 22. 100 Appellate Body Report, United States—Shrimp, WT/DS58/AB/R, adopted 6 November 1998, DSR 1998:VII, p. 2755, paras 152–159. 101 Ibidem, paras 178–183. 102 Cf. Weiß et al. (2022), pp. 207–208 with further references.

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example of the EU Investment Screening Regulation, which expressly refers to Art. XIV(a).103

4.4.2.1

Art. XIV(a) of the GATS: Public Order

In interpreting this provision, due regard must be had to Footnote 5, attached to this provision, which underlines that “[t]he public order exception may be invoked only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society”. The very first case dealing with Art. XIV(a) of the GATS already emphasized that the concept of “public order” may “vary in time and space” from one WTO Member to another; also, WTO Members should be free “to determine the level of protection that they consider appropriate”.104 As explained above, the “necessity” analysis called for under Art. XIV(a) of the GATS has largely been shaped, by the Appellate Body, by analogy with the “necessity” test developed under Art. XX of the GATT.105 Important additional elucidation on how Art. XIV(a) of the GATS may impact on investment screening has again been provided by the panel in the EU—Energy case. The panel had to deal with the question as to whether one of the EU’s measures— namely screening third-country suppliers of energy services for reasons of energy security and public security—can be justified under Art. XIV(a). Turning first to the issue of whether this measure was designed to maintain “public order” in the sense of this provision, the panel argued that it is sufficient to show with a minimum level of clarity that energy security is a fundamental interest of society in the sense of Footnote 5. Applying this low degree of scrutiny, the panel found that it is insignificant that the EU’s explanations involved some ambiguities.106 Addressing, secondly, the question as to whether there is a “genuine and sufficiently serious threat” to the security of energy supply, the panel concurred with the EU that investors controlled by foreign governments may have incentives to undermine the EU’s security of energy supply.107 Interpreting, thirdly, the criterion “designed to”, the panel underlined that it is sufficient that the measure at issue is “not incapable” of promoting energy security.108 In applying the “weighing and balancing” analysis that is required under the “necessity” test,109 the panel found (i) that energy security is of fundamental importance; (ii) that the screening mechanism at issue was manifestly apt to contribute to the maintenance of public order; and (iii) that the

103

Cf. above, Sect. 3.4. Panel Report, US—Gambling, para. 6.461. 105 Appellate Body Report, US—Gambling, paras 306 ff; on the necessity test under Art. XX, see above, Sect. 4.4.1. 106 Panel Report, EU—Energy, paras 7.1135. 107 Panel Report, EU—Energy, para. 7.1175. 108 Panel Report, EU—Energy, paras 7.1203 ff; quote at para. 7.1208. 109 See above, Sect. 4.4.1.2. 104

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degree of trade-restrictiveness of this screening measure was not undue, given that the prohibition on investments only applied in cases of threat to energy security.110

4.4.2.2

The Chapeau of Art. XIV: Test of Consistency?

Whereas the panel in EU—Energy thus applied considerable deference in its scrutiny of investment screening under Art. XIV(a), it took a distinctly more restrictive approach under the Chapeau of Art. XIV. While the panel acknowledged that foreign controlled investors may be influenced by foreign governments, it argued that this reasoning may apply to domestically controlled investors, too. While the panel in fact conceded that this threat of undue foreign influence for the EU’s energy security may be higher as regards persons controlled by foreign governments,111 it took issue with the fact that the EU had not addressed the threat posed by foreign governments requiring or inducing domestically controlled suppliers of energy services to undermine the security of the EU’s energy supply as well. Having applied this consistency test, the panel concluded that the EU’s measure constituted “arbitrary and unjustifiable discrimination” violating the Chapeau.112 If this quite exacting approach were to be upheld in future rulings, it would significantly reduce the regulatory space left to WTO Members as respects investment screening in sensitive policy fields.

4.4.3

Security Exceptions in the GATT (Art. XXI) and GATS (Art. XIVbis)

4.4.3.1

The Security Exceptions As Self-Judging Clauses?

Since investment screening mechanisms are typically also aimed at protecting national security (besides public order), the security exceptions in the GATT (Art. XXI) and GATS (Art. XIVbis) are of key significance for our context, too. For many decades, these exceptions have been regarded as the “boxes of Pandora” of the WTO regime.113 This is due to their alleged “self-judging” character, which has been understood, by several WTO Members and academics, as making it possible for a WTO Member to escape its obligations under WTO law by merely invoking these clauses when it claims that its national security is at stake.114 Due to

110

Panel Report, EU—Energy, paras 7.1209 ff. Panel Report, EU—Energy, para. 7.1250. 112 Panel Report, EU—Energy, para. 7.1253. 113 Cf. e.g. Roberts et al. (2019), pp. 655 ff; Boklan and Bahri (2020), p. 123; Van den Bossche and Akpofure (2020), text at fn 21.; this section and the following draw on Vranes (2023). 114 On this cf. Vranes (2023). 111

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the potentially vast effects of such an invocation of these exceptions for the functioning of the world trading system, the Members of the WTO and the Contracting Parties of the GATT 1947 had usually tried to avoid panel proceedings in cases involving security issues. Thus, since the entry into force of the GATT 1947, the GATT’s security exception had been invoked only on very rare occasions.115 In recent years, this situation has drastically changed, however, given that the security exception of the GATT (and the analogous security exception in the TRIPS Agreement) have increasingly been relied upon in several high-profile trade disputes. This development has rightly been regarded as the turn of an era.116 The first—and highly relevant—leading case in this regard is the 2019 panel report Russia—Traffic in Transit, which is the first WTO panel report interpreting Art. XXI of the GATT. It has dealt with Russian measures, which had been imposed in the context of the escalation of the crisis between Russia and Ukraine since 2014 (through these measures, Russia tried to restrict the transit of Ukrainian goods across Russia to other countries; Russia tried to justify these measures by claiming that it considered them necessary for the protection of its “essential security interests” in the sense of Art. XXI(b)(iii) of the GATT).117 Furthermore, Art. XXI has meanwhile also been applied in the 2022 US—Steel proceedings118 and the 2022 US—Origin Marking Requirement panel report.119 Moreover, the 2020 panel report in Saudi

115 Cf. e.g. Voon (2019), pp. 45 ff; see also the overview provided in the Appendix of the Panel Report, Russia—Traffic in Transit, WT/DS512/R, adopted 26 April 2019, DSR 2019:VIII, p. 4301. 116 Cf. e.g. Glöckle (2020); Heath (2020), pp. 1024 ff. 117 Panel Report, Russia—Traffic in Transit, paras 7.1 ff. 118 The proceedings in US—Steel concerned additional duties and related measures imposed by the US on steel and aluminium products. The US claimed that it considered these measures necessary for national security reasons. The reports, which have been circulated to the Members of the WTO in the US—Steel proceedings, had been triggered by China, Norway, Switzerland and Turkey (United States—Certain Measures on Steel and Aluminium Products, WT/DS544/R, Add.1 and Suppl.1, circulated to WTO Members 9 December 2022 (US—Steel (China)), United States— Certain Measures on Steel and Aluminium Products, WT/DS552/R, Add.1 and Suppl.1, circulated to WTO Members 9 December 2022 (US—Steel (Norway), United States—Certain Measures on Steel and Aluminium Products, WT/DS556/R, Add.1 and Suppl.1, circulated to WTO Members 9 December 2022 (US—Steel (Switzerland)), United States—Certain Measures on Steel and Aluminium Products, WT/DS564/R, Add.1 and Suppl.1, circulated to WTO Members 9 December 2022 (US—Steel (Turkey)). The findings of these reports overlaps to a great extent. Reference will therefore be made in the following to the Panel Report, US—Steel (China). 119 This panel report concerned a requirement, imposed by the US, according to which goods produced in Hong Kong may no longer be marked “Hong Kong” as their origin, but must be marked “China” (so-called “origin marking requirement”). This requirement had been imposed by the US as a reaction to Chinese measures taken vis-à-vis Hong Kong, which, in the perception of the US, undermined Hong Kong’s autonomy to such an extent that different treatment from the People’s Republic of China was no longer justified. Cf. Panel Report, US—Origin Marking Requirement, WT/DS597/R, circulated to Members 21 December 2022. On this cf. e.g. Hitosi Nasu (2023).

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Arabia—IPR120 has addressed the security exception of the TRIPS Agreement (Art. 71) for the first time, the wording of which is virtually identical to Art. XXI of the GATT. The reports in US—Steel, US—Origin Marking Requirements and Saudi Arabia—IPR have, however, not been adopted by the WTO Dispute Settlement Body due to the aforementioned Appellate Body crisis.121 Nonetheless, as has been stressed in WTO dispute settlement practice, WTO panels “could [. . .] find useful guidance in the reasoning” of unadopted reports, too.122 Furthermore, these reports are clearly also relevant regarding the textually and structurally almost identical security exception of the GATS (Art. XIVbis), which has not yet been invoked in WTO proceedings, but has explicitly been regarded as a provision that is “equivalent” to Art. XXI of the GATT in WTO dispute settlement practice.123

4.4.3.2

Clarifications in WTO Dispute Settlement

Art. XXI of the GATT provides in relevant part that “[n]othing in this Agreement shall be construed (a) to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or (b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests (i) relating to fissionable materials or the materials from which they are derived; (ii) relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment; (iii) taken in time of war or other emergency in international relations.”

All of the alternatives mentioned in subparagraphs (i), (ii) and (iii) are clearly relevant for investment screening that is undertaken for national security reasons.124

120

This case concerned a complaint brought by Qatar against Saudi Arabia, arguing that Saudi Arabia had infringed its obligations under the TRIPS Agreement by inter alia having prevented a Qatar-based media group from enforcing its TRIPS rights in Saudi Arabia. Saudi Arabia tried to defend itself by claiming that the dispute with Qatar was “no trade dispute at all”, but a “political, geopolitical and essential security dispute”. The panel nevertheless regarded the dispute as a case to be assessed in particular under the security exception of the TRIPS Agreement. Cf. WTO Panel Report, Saudi Arabia—Measures Concerning the Protection of Intellectual Property Rights, WT/DS567/R and Add.1, circulated to WTO Members on 16 June 2020 (quotes at para 7.8 of the report). 121 Cf. above, Chap. 1. 122 Cf. Panel Report, Japan—Alcoholic Beverages II, para. 6.10; Appellate Body Report, Japan— Alcoholic Beverages, II DSR 1996:I, 97, p. 10. 123 Panel Report, Russia—Traffic in Transit, para. 7.20. 124 Cf. again the example of the EU Screening Regulation, which—in a non-exhaustive list—e.g. refers to defence and dual use items (including e.g. nuclear technologies). Cf. above, Sect. 3.4. See

4.4

Relevant Exceptions in the GATT and GATS

45

The panel reports in the aforementioned proceedings had to address three questions of fundamental systemic importance: First, are Art. XXI of GATT (and, by implication, the analogous security exceptions of the GATS and TRIPS Agreements) “totally self-judging” clauses in the sense that their mere invocation by a defending WTO Member ousts a panel’s jurisdiction altogether?125 Secondly, if the answer to the first question is in the negative and a panel thus finds that it has jurisdiction to hear a case, how should the relevant elements in these clauses be interpreted? Thirdly, what is the standard of review to be applied by a WTO panel under the security exceptions (in other words: how extensive is the margin of appreciation to be granted to WTO Members in cases concerning essential security interests invoked under the WTO security exceptions)? These questions, which had been controversially discussed in the literature before the aforementioned seminal judgments,126 have arisen in particular due to the wording “which [a WTO Member] considers necessary” in the introductory clause (the “Chapeau”) of Art. XXI of the GATT and the analogous wording in the introductory clauses of Art. 71 of the TRIPS Agreement and Art. XIVbis of the GATS: this wording could, theoretically at least, indeed be read as precluding a panel’s jurisdiction when these clauses are relied upon by the defendant in a given case; alternatively, they can, however, also be interpreted as calling for a less intrusive judicial review by WTO panels. In all of the aforementioned proceedings, the defendant WTO Members have claimed that their measures were necessitated by an “emergency in international relations” in the sense of subparagraph (iii) of Art. XXI(b) of the GATT (and the analogously worded subparagraph (iii) of Art. 71(b) of the TRIPS Agreement in the Saudi Arabia—IPR case). Hence, the relevant wording in these disputes is the phrase “nothing in this Agreement shall be construed [. . .] to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests [. . .] taken in time of war or other emergency in international relations” (italics added), which is identical in Art. XXI(b)(iii) of the GATT, Art. XIVbis(iii) of the GATS and Art. 71(b)(iii) of the TRIPS Agreement. While the reasoning of the panels differed to some extent in the aforementioned reports, their conclusions clearly overlap and largely confirm those arrived at in the seminal Russia—Traffic case.127 Regarding the aforementioned first systemic question, it has rightly been submitted in the literature that interpreting the WTO security exceptions as fully “selfalso the screening grounds mentioned in the example of the Austrian Act implementing the Regulation Sect. 3.5 above. 125 This has been claimed e.g. by Russia in Russia—Traffic panel proceedings (cf. the Panel Report, Russia—Traffic, para. 7.26; and, occasionally, in the academic literature (on this cf. Alford (2011), pp. 698–699; Bhala (1998), p. 268 (claiming that no panel has jurisdiction over Article XXI of the GATT). 126 Cf. e.g. Schill and Briese (2009), pp. 61 ff. 127 For a comparative analysis of the panel reports in Russia—Traffic in Transit, US—Steel and Saudi Arabia—IPRs cf. Vranes (2023).

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judging” clauses would risk opening the “box of Pandora” of WTO law: if one indeed were to take the view that the mere invocation of one of the security exceptions by a defendant ousts a panel’s jurisdiction, then the security exceptions would amount to “catch-all provisions”128 not subject to judicial review, risking to incur the “collapse” of WTO law.129 Addressing this pivotal question, the panel in Russia—Traffic firmly rejected this view, which had in fact been taken by Russia, thus clarifying that the invocation of Art. XXI(b)(iii) of the GATT does not automatically take away a panel’s jurisdiction.130 The panel derived interpretative arguments for this central conclusion from relevant provisions of the WTO Dispute Settlement Understanding (DSU), from the object and purpose of the GATT and WTO law more generally as well as relevant practice in the application of the GATT and the travaux préparatoires of Art. XXI.131 Similarly, the panel in Saudi Arabia— IPRs found that it was bound to exercise its jurisdiction, despite the fact that Saudi Arabia had claimed that its invocation of the security exception of the TRIPS Agreement rendered the dispute “non-justiciable”.132 Likewise, the panel in US– Steel—relying on elaborate grammatical considerations, the principle of effective interpretation, relevant context and the object and purpose of the GATT and the WTO Agreement more generally –rejected the US claim that Art. XXI(b)(iii) is “self-judging” in the sense of being “non-justiciable”.133 Relying heavily on the wording of this provision, the panel in US—Origin Marking Requirement, too, found that Art. XXI(b)(iii) is justiciable.134 Regarding the second and third systemic questions, i.e. the interpretation of the criteria laid down in Art. XXI(b) and the appropriate standard of review, the panel in Russia—Traffic also arrived at a series of significant findings. On the one hand, it held that all three subparagraphs of this provision function as “limitative qualifying clauses” that restrict “the exercise of the discretion accorded to [WTO] Members under the Chapeau” to the circumstances defined in the subparagraphs.135 On the other hand, the panel found that the requirements laid down in these subparagraphs require objective determination, thus rejecting views held by some WTO Members

128

Schloemann and Ohlhoff (1999), pp. 441 ff. Hahn (1999), pp. 586 ff; Schloemann and Ohlhoff (1999), pp. 441 ff. 130 Panel Report, Russia—Traffic in Transit, paras 7.27–7.103. Similarly, the panel in Saudi Arabia—IPRs held that the DSU does not grant panels discretion to decline to exercise their jurisdiction, which has in principle been established in conformity with the DSU, if a security exception is invoked (at para 7.10–7.23). Similar conclusions have been drawn by the panels in US—Steel (China) (at paras 7.122–7.128) and US—Origin Marking Requirement (para 7.185). 131 Panel Report, Russia—Traffic in Transit, paras 7.53–7.56, 7.79 and 7.83–7.100. 132 Panel Report, Saudi Arabia—IPRs, paras 7.7–7.23. 133 Panel Report, US—Steel (China), paras 7.122–7.128 (quotations at para 7.128; italics added). 134 Panel Report, US—Origin Marking Requirement, paras 7.42–7.190. 135 Panel report, Russia—Transit, paras 7.62–7.65 (quotations at para 7.65). 129

4.4

Relevant Exceptions in the GATT and GATS

47

and some academics that these criteria are subject to a defending Member’s unilateral discretionary interpretation.136 The panel in Russia—Traffic furthermore clarified the pivotal concept “emergency in international relations”, submitting that this term encompasses “defence and military interests, as well as maintenance of law and public order interests”.137 As had similarly been submitted in the literature,138 the panel moreover stressed that “political or economic differences between Members are not sufficient, of themselves, to constitute an emergency in international relations” in the sense of this provision, “unless they give rise to defence and military interests, or maintenance of law and public order interests”.139 Additionally, the panel found that an emergency in international relations refers “generally to a situation of armed conflict, or of latent armed conflict, or of heightened tension or crisis, or general instability engulfing or surrounding a state”.140 The panel in Russia—Traffic furthermore proffered important guidance pertaining to the Chapeau of Art. XXI(b), according to which nothing in the GATT prevents any WTO Member “from taking any action which it considers necessary for the protection of its essential security interests”. It held that “essential security interests” must be understood as referring to the “quintessential functions of the state, namely the protection of its territory and its population from external threats, and the maintenance of law and public order internally”.141 The discretion arguably assigned to WTO Members by the wording “any action which it considers” in the Chapeau was regarded, by the panel, as not giving carte blanche to WTO Members, but as being confined by the principle of good faith; hence, WTO Members must not circumvent their GATT obligations by simply “re-labelling trade interests” as essential security interests.142 A WTO Member invoking this provision must therefore articulate these interests “sufficiently enough to demonstrate their veracity”.143 In this regard, the panel added a finding which deserves to be quoted in full: What qualifies as a sufficient level of articulation will depend on the emergency in international relations at issue. In particular, the Panel considers that the less characteristic is the

Panel report, Russia—Transit, paras 7.69 ff. These findings are in line with several views expressed in the academic literature; cf. in particular Schill and Briese (2009), pp. 96 ff, 106 ff. 137 Panel report, Russia—Transit, para 7.74. 138 Hahn (1999), pp. 578 ff. 139 Panel report, Russia—Transit, para 7.75. 140 Panel report, Russia—Transit, para 7.76 (italics added). 141 Panel Report, Russia—Traffic in Transit, para. 7.130; for a comparative analysis of how this and the following issues have been assessed in the slightly deviating (unadopted) Panel Report, Saudi Arabia—IPRs, cf. Vranes (2023). The issues pertaining to the Chapeau have not been addressed in the panel reports in US—Steel and US—Origin Marking Requirement, given that the latter reports had concluded that the US had not demonstrated the existence of an “emergency in international relations” in the sense of Art. XXI of the GATT and Art. 73 of the TRIPS Agreement, respectively. 142 Panel Report, Russia—Traffic in Transit, para. 7.133. 143 Panel Report, Russia—Traffic in Transit, para. 7.134. 136

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‘emergency in international relations’ invoked by the Member, i.e. the further it is removed from armed conflict, or a situation of breakdown of law and public order (whether in the invoking Member or in its immediate surroundings), the less obvious are the defence or military interests, or maintenance of law and public order interests, that can be generally expected to arise. In such cases, a Member would need to articulate its essential security interests with greater specificity than would be required when the emergency in international relations involved, for example, armed conflict.144

In other words: the closer a concrete instance of an emergency in international relations is to armed conflict, the more plausible it appears prima facie that a WTO Member’s essential security interests may be at stake and the lower the burden of argumentation will accordingly be.145 Moreover, regarding the nexus (expressed by the wording “which it considers necessary for”) between the measures employed and the goal pursued, the panel in Russia—Traffic required that the respondent WTO Member must demonstrate that the measures adopted “are not implausible as measures protective of these interests”.146 This can be regarded as an application of the “necessity” analysis known from the GATT provisions discussed above (namely Art. XX(d) and XX(j)),147 being applied, however, with a very high degree of deference in this case, arguably reducing the analysis to a test of the suitability of the measure adopted.148 The panel in Saudi Arabia—IPRs largely concurred with the findings of Russia— Traffic.149 While it is conspicuous that the panel in US—Steel has not explicitly referred to the preceding panel report in Russia—Transit (although the latter had

144 Panel Report, Russia—Transit, para 7.135 (italics added). On the divergent approach of the panel in Saudi Arabia—IPRs see in the following text. 145 This finding of the panel has also been regarded as “sliding scale” approach (Van den Bossche and Akpofure (2020), fn 162 with further references), introduced by the panel in order to adjust the burden of argumentation in correspondence with the degree of plausibility that appears suitable depending on the circumstances of the concrete case at issue (cf. Vranes (2023)). 146 Panel Report, Russia—Traffic in Transit, para. 7.138 (italics added). 147 On this provision see above, Sect. 4.4.1.1. 148 On the concepts of suitability, necessity, proportionality and the variations of deference under these concepts in WTO case law cf. Vranes (2009a), pp. 266 ff. 149 Thus, the panel in Saudi Arabia—IPRs submitted that the analytical framework defined in the Russia—Transit panel report “can guide” its assessment (at para . . .). To some extent, this unadopted report appears to have nonetheless deviated from this structure. First, the panel in Russia—Transit had required the respondent “to articulate the essential security interests said to arise from the emergency in international relations sufficiently enough to demonstrate their veracity”. The Saudi Arabia—IPRs panel, in contrast, related the requirement of sufficient articulation to the link between ends (the essential security interests at stake). Secondly, the Russia—Transit panel report had found that it must review “whether the measures are so remote from, or unrelated to, the [. . .] emergency that it is implausible that [the respondent had] implemented the measures for the protection of its essential security interests arising out of the emergency” (Panel Report, Russia— Traffic, para 139) and had held that it must not inquire into the necessity of the measures at issue. In contradistinction, the Saudi Arabia—IPRs panel connected the “implausibility” standard to the necessity of the measures (cf. Panel Report, Saudi Arabia—IPRs, para 7.242.

4.5

Unexpected Challenges? The Overlap Between the GATT and GATS Agreements

49

been expected by trade experts to serve as a model for future reports150) nor to the report in Saudi Arabia—IPRs,151 it has reached similar interpretative results.152 Likewise, the panel in US—Origin Marking Requirement has arrived at similar conclusions on the issues discussed in the seminal Russia—Traffic ruling.153 As has also been stressed in the literature, the interpretative approach taken by the panel in Russia—Traffic is likely to also inform similar concepts in the other paragraphs of Art. XXI of the GATT (i.e. paragraphs Art. XXI(b)(i) and Art. XXI (b)(ii)), which are highly relevant for investment screening undertaken for security reasons, too.154 As indicated above, this arguably holds true also for the analogous security exception in the GATS, which is particularly significant for investment screening as well.155 It should be added that while Russia and Saudi Arabia have been successful in their invocation of the security exceptions in the GATT and TRIPS Agreement, the US attempts to rely on the GATT security exception failed in both the 2022 US— Steel proceedings and the 2022 US—Origin Marking Requirement case, as the US has not been able to overcome the legal hurdles clarified in the panel reports discussed above. This shows that the WTO panels have not opened these potential “boxes of Pandora” of WTO law. Rather, any successful invocation of these clauses largely depends on the margin of appreciation granted to defendant WTO Members, which will be determined, to a considerable extent, on a case-by-case analysis. We will come back to the concrete implications that the WTO security exceptions and the aforementioned panel reports produce for investment screening in Sect. 5. 3.2. below.

4.5

Unexpected Challenges? The Overlap Between the GATT and GATS Agreements

It is often overlooked—but of distinct import for our topic—that measures, which do come within sectors where there is no pertinent GATS commitment, can nonetheless give rise to WTO proceedings due to an overlap which exists between the GATT and the GATS.156 This overlap arises from the fact that the scopes of application of both agreements intersect in certain situations, which may lead to unexpected WTO obligations. The overlap has its root in the fact that the applicability of the GATT

150

Cf. e.g. Van den Bossche and Zdouc (2022), p. 675. One exception being fn 479, where the US - Steel panel distinguished part of its order analysis from the two preceding reports. 152 Cf. Vranes (2023). 153 Panel Report, US—Origin Marking Requirement, para 7.161 and fn 197. 154 Van den Bossche and Zdouc (2022), p. 675. On this see below, Sect. 5.3.2. 155 Cf. below, Sect. 5.3.2. 156 This section draws on Vranes (2012), pp. 670–671, and Vranes (2009b), pp. 215 ff. 151

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and the GATS hinges on the terms “affecting trade in goods” and “affecting trade in services”, respectively.157 Consequently, if a measure affects both trade in goods and services, it will in principle have to be scrutinized under both agreements, since the relationship between the respective scopes of application of the GATT and the GATS is not explicitly regulated.158 In order to illustrate why this overlap may be problematic also in the investment screening context, it is useful to think of a measure that has been enacted with the intention to regulate investments in a sector for which a WTO Member has not undertaken a commitment under the GATS. Such a measure, which is permissible under the GATS, could still be challenged under the GATT—due to the overlap—to the extent it affects trade in goods. The fact that the pivotal term “affecting trade in goods” has generally been interpreted broadly in WTO dispute settlement159 leads to the consequence that even potential, slight and indirect effects on trade in goods can trigger unexpected indirect challenges, via the GATT, of measures screening investments (“commercial presence” in the sense of the GATS) in sectors not committed under the GATS. To give another recent example of considerable economic and political implications in the investment context, one can refer to the 2019 EU Directive on the Internal Electricity Market.160 The EU has not undertaken commitments in the GATS sector “Services incidental to energy distribution”.161 Although it does not seem self-evident that other WTO Members should be able to indirectly challenge the economic effect of such a non-commitment on the basis that trade in goods such as electricity162 is potentially or marginally affected by investment screening activities, there is a risk that such a situation could nonetheless lead to WTO proceedings under the GATT, as follows from relevant WTO dispute settlement practice.163 Such a dispute would lead to a series of intricate legal problems. In this respect, the author has tried to show elsewhere that there are strong arguments that non-commitments, limitations and MFN exemptions that have been inscribed in a WTO Member’s GATS schedule should prevail over a conflicting prohibition under the GATT. Likewise, where a measure is justified under the general exception clauses of either the GATT or the GATS, the analogous exception clause under

157

For a more detailed study of this issue cf. Vranes (2009b), pp. 215 ff. Cf. also the Appellate Body Report, EC—Bananas III, WT/DS27/AB/R, adopted on 25 September 1997), para. 221. 159 Cf. Vranes (2009b), pp. 215 ff with further references. 160 Directive (EU) 2019/944, OJ L 158 of 14/06/2019, p. 125. 161 Sector 1.F.j in the GATS services sectoral classification list, cf. WTO document MTN.GNS/W/ 120 of 10 July 1991; cf. also the EU schedule: European Communities and their Member States, Schedule of Specific Commitments, WTO document GATS/SC/31 (as supplemented and revised, see WTO documents GATS/SC/31/Suppl.3, GATS/SC/31/Suppl.4 GATS/SC/31/Suppl.4/Rev.1). 162 On the possible classification of electricity as a good under WTO law, cf. e.g. Wiser (2002), p. 294; Pierros and Nüesch (2001), pp. 98–99, 100–101, 103–104 and passim. 163 Cf. the Panel Report, Canada—Certain Measures Concerning Periodicals, WT/DS31/R, adopted 30 July 1997, DSR 1997:I, 481. On this cf. Vranes (2009b), pp. 15 ff. 158

References

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the other agreement should be construed, to the extent possible, so as to avoid conflicting obligations.164

References Adlung R (2016) International rules governing foreign direct investment in services. J World Invest Trade 17:47–85 Alford RP (2011) The self-judging WTO security exception. Utah Law Rev:697–759 Berrisch GM (2003) Das Allgemeine Zoll- und Handelsabkommen. In: Priess H-J et al (eds) WTO-Handbuch. C.H. Beck, Munich, pp 71–168 Bhala R (1998) National security and international trade law. Univ Pa J Int Law 19(2):263–317 Boklan D, Bahri A (2020) The first WTO’s ruling on national security exception. World Trade Rev 19:123–136 Cheng B (2021) Foreign direct investment screening and national security. J World Invest Trade 22: 561–595 Choukroune L, Nedumpara JJ (2022) International economic law. Cambridge University Press, Cambridge Civello P (1999) The TRIMs agreement: a failed attempt. Minnesota J Global Trade 8:97–126 Delimatsis P (2007) Due process and ‘good’ regulation embedded in the GATS. J Int Econ Law 10(1):13–50 Eberhard H et al (2021) Europäisches und öffentliches Wirtschaftsrecht, vol 2, 11th edn. Verlag Österreich, Vienna Fassion J, Natens B (2020) The EU proposal for FDI control: the WTO on the sidelines? In: Bourgeois JHJ (ed) EU framework for foreign direct investment control. Wolters Kluwer, Alphen an den Rijn, pp 121–134 Glöckle C (2020) The second chapter on a national security exception in WTO law, 22 July 2020, available via EJIL Talk, https://www.ejiltalk.org/the-second-chapter-on-a-national-securityexception-in-wto-law-the-panel-report-in-saudi-arabia-protection-of-ipr Hahn MJ (1999) Vital interests and the law of the GATT: an analysis of GATT’s security exception. Michigan J Int Law 12(3):558–620 Heath JB (2020) The new national security challenge to the economic order. Yale Law J 129:1020– 1098 Hitosi Nasu (2023) US – Origin Marking Requirement: Did the WTO Panel Get the Balance Right between Trade Security and National Security? EJIL: Talk!, 25 January 2023 (available at https://www.ejiltalk.org/us-origin-marking-requirement-did-thewto-panel-get-the-balanceright-between-trade-security-and-national-security/) (visited 14 Aug. 2023) Krajewski M (2003) National regulation and trade liberalization in services. Kluwer, The Hague Pauwelyn J (2003) Conflict of norms in public international law. How WTO law relates to other rules of international law. Cambridge University Press, Cambridge Pierros PX, Nüesch S (2001) Trade in electricity. Spot on, Journal of World Trade 34(4):95–124 Pitschas C (2003) Allgemeines Übereinkommen über den Handel mit Dienstleistungen (GATS). In: Priess H-J et al (eds) WTO-Handbuch. C.H. Beck, Munich, pp 495–563 Quillin S (2003) The World Trade Organization and its protection of foreign direct investment. Oklahoma City Univ Law Rev 28(2&3):875–903 Roberts A, Choer Moraes H, Ferguson V (2019) Toward a geoeconomic order in international trade and investment. J Int Econ Law 22(4):655–676

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Vranes (2009b), pp. 215 ff.

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Schill SW, Briese R (2009) “If the state considers”: self-judging clauses in international dispute settlement. In: von Bogdandy A, Wolfrum R (eds) Max Planck yearbook of United Nations law, vol 13. Brill, Leiden, pp 51–140 Schloemann H, Ohlhoff S (1999) Constitutionalization and dispute settlement in the WTO: national security as an issue of competence. Am J Int Law 93(2):424–451 Van den Bossche P, Akpofure S (2020) The Use and Abuse of the National Security Exception under Article XXI(b)(iii) of the GATT 1994. WTI Working Paper No. 03/2020, available via https://www.wti.org/research/publications/1299/the-use-and-abuse-of-the-national-securityexception-under-article-xxibiii-of-the-gatt-1994 Van den Bossche P, Zdouc W (2022) The law and policy of the World Trade Organization, 5th edn. Cambridge University Press, Cambridge Voon T (2019) The security exception in WTO law: entering a new era. Am J Int Law Unbound:45–50 Vranes E (2003) The banana dispute. Fundamental issues in WTO law. In: Breuss F, Griller S, Vranes E (eds) The banana dispute. An economic and legal analysis. Springer, Vienna/New York, pp 39–111 Vranes E (2009a) Trade and the environment. Oxford University Press, Oxford Vranes E (2009b) The overlap between GATT and GATS: a methodological maze. Legal Iss Econ Integr 36(3):215–238 Vranes E (2010) The WTO and regulatory freedom. J Int Econ Law 12(4):953–987 Vranes E (2012) State measures protecting against ‘undesirable’ foreign investment. Zeitschrift für öffentliches Recht: 639–677 Vranes E (2023) WTO security exceptions in practice and scholarship. Curtailing “trump cards” through proportionality, SpringerNature, Cham Weiß W, Ohler C, Bungenberg M (2022) Welthandelsrecht, 3rd edn. C.H. Beck, Munich Wiser G (2002) Frontiers in trade. Int J Glob Environ Iss 2(3–4):288–309 Zdouc W (1999) WTO dispute settlement practice relating to the GATS. J Int Econ Law 2(2): 295–346

Chapter 5

The Example of EU Investment Screening As a “Test Case” Under WTO Law

This final Chapter assesses the WTO-consistency of EU investment screening as a “test case” exemplifying the relevance of WTO rules for national investment screening mechanisms. After briefly recalling the vast scope of interaction with WTO law (Sect. 5.1), this Chapter will point to potential violations of obligations arising under WTO law (Sect. 5.2) and the possibility of justifying such violations (Sect. 5.3).

5.1

Vast Scope of Interaction with WTO Law

As follows from the preceding considerations, the scope of interaction between EU investment screening and WTO law is considerable due to the very broad ambit of WTO law. As explained above, this is due to the fact that the substantive disciplines of the GATT and GATS apply to any measures affecting trade in goods, services or investors (coming under the GATS definition of “commercial presence”), it being sufficient that such measures—be they substantive or procedural in character1— potentially modify the conditions of competition.2 Moreover, since it suffices that a measure has a certain “degree of authoritativeness”,3 acts such as the aforementioned EU Commission guidelines on investment screening4 and similar national instruments may become relevant under WTO law, even if they prima facie possess a mere soft law character. The same holds true for soft law-type measures like the “comply or explain mechanism” that has been built into the EU Screening Regulation,5 which is meant to influence concrete screening

1

See above, Sect. 4.2.1. Cf. above, Chap. 4, Sects. 4.2.1 and 4.3.1. 3 See above, Sect. 4.2.4. 4 Cf. above, Sect. 3.5. 5 Cf. above, Sect. 3.4.1. 2

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 E. Vranes, Investment Screening and WTO Law, SpringerBriefs in Law, https://doi.org/10.1007/978-3-031-46724-0_5

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decisions of Member States. Likewise, irrespectively of their classification in national law, “agreements” between national authorities and foreign investors may come under the purview of WTO law, if they potentially negatively affect foreign products, services or investors (even during the pre-establishment phase of investments).6 Moreover, as stated above, WTO Members can invoke GATS disciplines not only for existing suppliers of services (including investors coming under the GATS concept “commercial presence”), but also for potential future investors.7 These problems, which pertain to the broad scopes of application of the GATT and the GATS, are potentiated by the overlap between the GATT and the GATS referred to in the preceding section.

5.2

Possible Violations of Basic WTO Disciplines

As outlined above, the example of the EU approach to investment screening for security and public order reasons comprises several levels, namely EU primary law, the EU Screening Regulation, national screening mechanisms as regulated in statutory law, and their implementation by general administrative measures as well as decisions taken in individual cases.8 It is possible, therefore, that violations of WTO law occur on one or more of these levels: theoretically, the EU Screening Regulation as such could infringe WTO disciplines; similarly, relevant national statutory law as such may breach WTO law; the same holds true for general administrative measures.9 Furthermore, the application of general rules in individual cases may contravene WTO law.10 Turning to concrete instances of potential infringements of WTO law by investment screening activities within the example of the EU framework, there is a risk that screening decisions that do not authorize investments originating in a given WTO Member could be challenged on the basis of the MFN principles of the GATT and the GATS. A case in point is Art. 4 of the EU Screening Regulation, which cites the criterion of whether an investor is “directly or indirectly controlled” by foreign governments as a factor relevant for determining whether an investment is likely to affect security or public order. The fact that the risk of challenges under the GATT and GATS MFN clauses is quite real is clearly exemplified by the EU—Energy proceedings, in which Russia tried to invoke the most-favoured-nation clauses in

6

Cf. above, Sects. 4.1 and 4.2.1. Cf. above, Sect. 4.3.1. 8 Cf. above, Sect. 3.4. 9 On the concepts of “as such” violations (as opposed to “as applied” violations) of WTO law cf. Van den Bossche and Zdouc (2022), p. 551 (citing the Panel Report, Colombia—Textiles (Art. 21.5—Colombia) para. 7.357) and Fassion and Natens (2020), p. 131. 10 Cf. ibidem. 7

5.2

Possible Violations of Basic WTO Disciplines

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both agreements against screening measures adopted in the EU.11 As respects the EU Screening Regulation, the risk of such challenges is not per se sufficiently resolved by Art. 3 of the EU Screening Regulation, which merely confines itself to emphasizing that the EU Member States should not discriminate between third countries.12 Similarly, screening decisions taken in individual cases could be challenged by invoking the GATT national treatment clause (which e.g. the US successfully did in the Canada—FIRA case13) or Arts. XI, XVI and XVII of the GATS (as Russia had tried in the EU—Energy case).14 As also noted above, the GATT and GATS transparency rules are specifically significant for investment screening. This is again evidenced by the the example of the EU—Energy case, where Art. VI of the GATS had been invoked by Russia.15 This relevance is arguably also implicitly acknowledged by Art. 3 of the EU Screening Regulation, which, as noted above, lays down transparency and publication requirements that are textually similar to corresponding standards in the GATT and GATS. Some of these standards, such as e.g. the requirement of review of administrative decisions (Art. X:3(b) of the GATT and Art. XV:2(a) of the GATS), are arguably fulfilled or even overfulfilled in the EU context, given that EU law, as interpreted by the ECJ, necessitates review by judicial tribunals in such cases,16 whereas WTO law restricts itself to requiring judicial, arbitral or administrative tribunals or other procedures which provide for the prompt review of administrative decisions.17 A further case in point which arguably does not raise concerns in terms of WTO law is Art. 5 of the EU Screening Regulation, which obliges the EU Member States to submit annual screening reports, but does not require the Member States to publish individual screening decisions.18 This is in line with Art. X:1 of the GATT, which merely calls for the publication of administrative rulings “of general application”.19 Turning to an example that is more problematic from the viewpoint of the GATT and GATS transparency standards, one can point to the fact that some of the rules in the Austrian Investment Act implementing the EU Screening Regulation have, as indicated, been regarded as being rather unclear: this in particular includes the Annex of the Austrian Act on Investment Screening with its two parts that list Panel Report, EU—Energy, paras 7.402 ff and 7.824 ff (under both the GATT and the GATS, Russia was not able to demonstrate that violations had actually occurred, however). 12 See above, Sect. 3.4. 13 See above, Sect. 4.1. 14 See above, Sects. 4.3.2, 4.3.3, 4.3.4. 15 Cf. above, Sect. 4.3.5. 16 According to relevant ECJ jurisprudence and the EU Charter of Fundamental Rights, there is a right of seeking review before a court in such cases; see e.g. Voland and Slobodenjuk (2020), Art. 3, para. 7 (referring to CJEU, Case 222/86, Heylens, ECLI:EU:C:1987:442, paras. 14-15). 17 Cf. Art. X(3)(b) of the GATT and Art. VI:2 of the GATS, respectively. On this see also above, Sects. 4.2.4, 4.3.5. 18 Cf. above, Sect. 3.4. 19 Cf. above, Sect. 4.2.4. 11

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particularly sensitive sectors on the one hand and “other sectors” on the other hand, both parts being subject to different thresholds that trigger investment screening.20 Since there are overlaps between these lists,21 it is not sufficiently clear ex ante in which cases investments will be subject to screening. In a similar vein, the Austrian rules on the aggregation of shares involved in a given investment project have, as mentioned above, been regarded as not being satisfactorily clear for investors and competent administrative bodies alike.22 Furthermore, the duration of the review of investment screening decisions in the complex EU multilevel system could raise concerns: although the question as to whether administration is “unreasonable” requires a case-by-case assessment,23 unduly long review proceedings have been found to violate Art. X:3(a) of the GATT.24 Overall, the risk of violations of WTO law tends to increase with the regulatory “density” of legal acts. In the light of the above considerations, it is submitted that the risk that the EU Screening Regulation as such violates the standards laid down in the GATT and GATS is rather low due to its loose framework character25; this potential is rather low also as respects statutory rules like most of those of the example of the Austrian Act on Investment Screening (though to a lesser extent, given that this Act is more precise than the EU Regulation). The risk of violations of WTO law tends to be highest as regards administrative measures and decisions in the application of screening mechanisms in individual cases.26 In the next Section, we turn to the question as to how potential infringements could be justified.

5.3

Justification of Violations of WTO Law

Since the example of the EU Screening Regulation—like screening mechanisms of several other WTO Members—is concerned with screening for public order and security reasons, we will focus on those provisions in the GATT and GATS that are principally relevant for justifying prima facie violations of the GATT and the GATS on these grounds of justification. As explained above, these provisions are the “general exceptions” clauses of the GATT and GATS on the one hand and the “security exceptions” of these agreements on the other hand.

20

Cf. above, Sect. 3.5. Cf. above, Sect. 3.5. 22 Winner (2022), p. 139 ff. 23 Cf. above, Sect. 4.2.4. 24 Cf. Van den Bossche and Zdouc (2022), p. 553 with further references. 25 On this see also Fassion and Natens (2020), p. 131 ff. 26 Cf. Fassion and Natens (2020), p. 131 ff. 21

5.3

Justification of Violations of WTO Law

5.3.1

57

General Exceptions in the GATT and GATS

As indicated, the EU Screening Regulation expressly refers to Art. XIV(a) of the GATS, which makes it possible to justify violations of GATS disciplines on “public order” grounds. As respects this provision, it should in principle be possible to demonstrate in WTO proceedings that investment screening for public order reasons is covered by the WTO term “public order” in the specific sense of this provision, given that WTO dispute settlement practice has granted considerable regulatory leeway to WTO Members by recognizing that this concept may vary over time and from one WTO Member to another; moreover, as a case in point, WTO panels have expressly held e.g. that energy security can be regarded as a fundamental interest of society in the sense of Art. XIV(a) and the accompanying interpretative Footnote 5 of the GATS.27 This—and the fact that WTO panels generally apply a high degree of deference to the policy goal pursued by a WTO Member28—can arguably be read as an indication that they would also accept that the protection of other policy goals such as those mentioned in the EU Screening Regulation and the example of the Austrian Act on Investment Screening—namely the protection of systems guaranteeing data sovereignty, critical infrastructure such as information technology, transport, health etc.29—is covered by the GATS concept of protecting “public order”. Nevertheless—and although WTO dispute settlement bodies in principle accept the level of protection that a WTO Member pursues30—there are some issues causing concern as respects the example of EU investment screening. First, while the EU Regulation explicitly refers to Art. XIV(a) in its recitals, thereby clearly implying that this WTO provision contains guidelines that are particularly relevant for interpreting the EU Regulation and related national investment decisions,31 the example of the Austrian Act merely refers to EU primary law as relevant interpretative context, thereby overlooking the relevance of WTO law.32 The role of WTO law is likewise ignored in most of the literature dealing with the EU Regulation.33 However, not observing the primary role of Art. XIV(a) and related WTO provisions risks infringing WTO standards when screening decisions are taken in individual cases.34 As briefly mentioned above, a second matter of concern is the “risk nexus” between concrete foreign direct investments and security and public order in the EU Screening Regulation: In this context, the Regulation uses the concept of 27

Cf. above, Sect. 4.4.2.1. Cf. Sect. 4.4.1.1. 29 Cf. Sects. 3.4. and 3.5. 30 Cf. above, Sect. 4.4.1.1. 31 Cf. above, Sect. 3.4. 32 Cf. para. 3 of the Austrian Act; on this above, Sect. 3.5. 33 Cf. above, Sect. 3.5. 34 On this see also Velten (2020), p. 7 ff, 11 ff. 28

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whether a given investment is “likely to affect” security or public order35; in a similar vein, screening under the Austrian Act on Investment Screening hinges on the test of whether a given foreign investment “may affect” security or public order. This loose nexus does not textually correspond to the noticeably stricter standard imposed by the GATS, which requires a “genuine and sufficiently serious threat...to one of the fundamental interests of society” in interpretative Footnote 5.36 In addition, this textual deviation underlines that the example of the Austrian Act is problematic as it only refers to EU primary law as interpretative context. This legislative shortcoming is not cured by unduly vague “salvatory clauses”—such as the one to be found in the example of the Austrian Act—according to which investments ought to be authorized if their non-approval were “contrary to international law”.37 The next relevant hurdle to be overcome under Art. XIV(a) is the balancing test required by the necessity analysis, which has to take into account the importance of the national policy goal, the degree to which a measure promotes the policy goal, and the trade-restrictiveness of the measure.38 As mentioned by way of example, the screening mechanism instituted by the EU in the gas sector has in fact been approved in the EU—Energy case, where the panel in particular stressed that prohibitions on investments were only to be applied in cases of threats to energy security.39 As also indicated above, a significantly more challenging obstacle can be found in the Chapeau of Art. XIV of the GATS, as interpreted in especially in the EU— Energy report. If the exacting consistency text applied by the panel under the Chapeau in this case40 were applied to the EU Screening Regulation and the example of the Austrian Investment Screening Act, then this could have problematic consequences: On the one hand, the Regulation requires the Member States to adopt measures to prevent circumventions of their screening mechanisms41; on the other hand, neither the Regulation nor the example of the Austrian Act contain clear guidance in this respect. In this connection it has to be stressed, moreover, that the Austrian Act does not provide for measures addressing risks posed by Austrian companies which are not the object of FDI transactions, but might nonetheless be subject to undue influence by foreign governments.42 Additionally, it is to be recalled that the WTO Appellate Body, when interpreting the Chapeau, has emphasized that measures to be justified under the general exception clauses must all the

35 Cf. e.g. Art. 4(1) and 4(2) of the Regulation. All in all, the term “likely to affect” is used 21 times in the Regulation. On this see also Velten (2020), p. 9 ff et passim. 36 Cf. above, Sect. 4.4.2. 37 Para. 2(1)(2) of the Austrian Act. 38 Cf. above, Sect. 4.4.1. 39 Cf. above, Sect. 4.4.2.1. 40 Cf. above, Sect. 4.4.2.2. 41 Art. 3(1) of the Regulation. 42 It is for an analogous consideration that the panel in EU—Energy has regarded the investment screening mechanism in the EU gas sector as breaching the Chapeau of Art. XIV. On this cf. above, Sect. 4.4.2.2.

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more comply with the transparency standards to be found in Art. X of the GATT and Art. VI of the GATS: therefore, the aforementioned unclear list approach43 (as well as the equally imprecise rules on the aggregation of shares44) in the Austrian Act could be regarded as being problematical not only under Art. VI of the GATS,45 but under the Chapeau of Art. XIV as well. Although the EU Screening Regulation merely expressly refers to Article XIV (a) of the GATS, but not to Art. XX of the GATT, the latter exception clause is also highly significant for justifying potential effects that screening measures may have on trade in products.46 Hence, it needs to be recalled that this provision, unlike Art. XIV(a) of the GATS, does not comprise “public order” as an explicit ground of justification. However, as submitted above, Art. XX(d) can arguably be regarded as opening up, to some extent, the closed list of the policy goals explicitly recognized in Arts. XX(a)-XX(j). Since Art. XX(d) of the GATT and Art. XIV(a) of the GATS as well as the respective Chapeaus of these clauses are structured in a similar manner, reference can be made to the considerations just outlined with respect to Art. XIV (a) of the GATS. By contrast, if it were decided that public order concerns can only be invoked under Art. XIV(a) of the GATS, but not under Art. XX of the GATT, then the considerations regarding the GATT/GATS overlap would become relevant.47 Finally, since the example of the EU Screening Regulation also aims at ensuring supply of critical inputs (including e.g. energy or raw materials) and the example of the Austrian Act aims to ensure e.g. supply of food,48 it could be submitted that a given screening measure potentially affecting trade in such products is “essential to the acquisition or distribution of products in general or local short supply” in the sense of Art. XX(j) of the GATT. As mentioned above, this provision is of evident importance e.g. in a crisis like the gas and energy crisis encounted by several EU Member States in 2022/23 due to the Ukraine war. As indicated, the panel in EU – Energy has held that WTO Members can only rely on this provision, if pertinent products are “presently” in short supply. In future proceedings before the WTO, a WTO Member defending screening activities would, therefore, need to challenge this—arguably overly—restrictive stance and refer to prior jurisprudence of the WTO Appellate Body, according to which account may be taken of potential future risks of short supply.49

43

Cf. above, Sect. 3.5. Cf. above, Sect. 3.5. 45 On this cf. above, Sect. 5.2. 46 This is underlined in particular by the panel reports in the aforementioned FIRA and EU – Energy cases. 47 Cf. above, Sect. 4.5, where it has been argued that the fact that a given measure is held to be justified under the GATT may have to be regarded as being relevant under the GATS, too. 48 Cf. Art. 4(1)(c) of the Regulation and Part 2 of the Annex to the Austrian Act, respectively. 49 Appellate Body Report, India – Solar Cells, paras 5.72 and 5.76. On this cf. above, Sects. 4.4.1.3, 5.3.1. 44

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The Example of EU Investment Screening As a “Test Case” Under WTO Law

Security Exceptions in the GATT and GATS

National security and related exception clauses in international agreements have increasingly been invoked in recent years50; as indicated above, this holds true for WTO proceedings, too.51 As regards investment screening for security concerns, the security exceptions in the GATT and GATS will arguably also become more important, not least since the international security situation is unlikely to become considerably less tense anytime soon. If screening measures relating to security concerns were to be justified under Art. XXI of the GATT, then it would be necessary not only to apply the parameters ensuing from the aforementioned recent WTO panel reports, but also to determine in particular to what extent these interpretative guidelines could be applied to those parts of Art. XXI of the GATT (or the analogous clause of Art. XIVbis of the GATS) that have not so far been addressed in WTO rulings, namely Art. XXI(b)(i)-(ii) of the GATT and Art. XIVbis(b)(i)-(ii) of the GATS, which deal with concerns relating e.g. to fissionable materials, traffic in arms, ammunition and implements of war. In this regard, it should first be recalled that the panel in Russia—Traffic has found that the key criteria in Art. XXI(b)(iii) such as “any action...taken in time of... emergency in international relations” are “amenable to objective determination”.52 It can arguably be assumed that other WTO panels would likewise regard the the criteria in Art. XXI(b)(i) and XXI(b)(ii) (i.e. “fissionable materials”, “arms, ammunitions and implements of war” etc)—as justiciable.53 This is specifically significant for the example of the EU Screening Regulation, given that the Regulation refers to sectors and projects with relevant security dimensions, such as dual use items (including e.g. defense, nuclear technologies, energy storage), the European Defence Industrial Development Programme, the Trans-European Networks for Energy, Transport and Telecommunications and other projects54; similarly, the Austrian Act e.g. refers to defense-related products and technologies as areas of concern.55 Secondly, it is to be stressed that the panel in Russia—Traffic, when interpreting the Chapeau of Art. XXI(b)(iii), has applied a very low degree of scrutiny regarding the nexus between a given measure and the policy goal of protecting essential security interests, by merely requiring that the measures adopted “are not implausible as measures protective of these interests”.56 Since the Chapeau not only serves as the introductory clause to Art. XXI(b)(iii), but also to Art. XXI(b)(i) and XXI(b)(ii), WTO panels would arguably take a similarly deferential approach to this nexus 50

Cf. e.g. Schill and Briese (2009), pp. 96 ff, 106 ff with further references. Cf. above, Sect. 4.4.1.3. 52 Cf. above, Sect. 4.4.3.2. 53 Regarding views expressed in academic writings before this panel report cf. again Schill and Briese (2009), pp. 106 ff with further references. 54 Cf. above, Sect. 3.4. 55 Cf. above, Sect. 3.5. 56 Cf. above, Sect. 4.4.3.2. 51

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when dealing with Art. XXI(b)(i) and XXI(b)(ii) as regards measures relating to fissionable materials, traffic in arms etc. The same arguably holds true for the nexus, under Art. XXI(a), between the non-disclosure of information by a WTO Member and the protection of its essential security interests, given that this nexus is expressed in analogous terms (“any information the disclosure of which [a WTO Member] considers contrary to its essential security interests”). Thirdly, as the panel in Russia—Traffic has held that the clause “any action which [a WTO Member] considers necessary for the protection of its essential security interests” in Art. XXI(b) is confined by the principle of good faith, which means that a WTO Member merely needs to articulate these interests “sufficiently enough to demonstrate their veracity”,57 it may be assumed that other panels will approach the similarly worded clause of Art. XXI(a) in a similarly deferential manner. It follows from the above that if one transposes the interpretation of Art. XXI(b) (iii) to Art. XXI(b)(i) and Art. XXI(b)(ii), then it would arguably be possible for the EU and its Member States to justify investment screening activities relating to fissionable materials under Art. XXI(b)(i) on the one hand and investment screening relating to traffic in arms, ammunition and implements of war under Art. XXI(b) (ii) on the other hand, so long as such screening actions are, firstly, “not implausible as measures protective” of their quintessential security interests, which, secondly, need to be articulated with sufficient clarity.58 Likewise, an EU Member State would arguably be in a position to justify, under Art. XXI(b)(iii), screening measures “taken in time of war or emergency in international relations”, if, firstly, such a crisis can be objectively determined and if the state, secondly, can show that the screening activities are “not implausible” as measures protecting quintessential security interests, which, thirdly, again would have to be articulated with sufficient clarity. Additionally, according to Art. XXI(a), the EU and its Member States arguably would not need to disclose information gathered during investment screening activities, as long as the good faith standard applied by the panel in Russia – Traffic is complied with: it would, therefore, be sufficient under Art. XXI(a) to articulate essential security interests “sufficiently enough to demonstrate their veracity” and to credibly demonstrate that furnishing information obtained during investment screening would affect such quintessential interests.

57

Cf. above, Sect. 4.4.3.2. It has been submitted in the literature that the GATS analogon of GATT Art. XXI(b)(iii) (i.e. Art. XIVbis(1)(iii) of the GATS) would not be relevant for EU investment screening, given that the EU Regulation has not been adopted “in time of war or emergency” (cf. Velten (2020), p. 10). It is submitted, however, that this view is too narrow: the EU Regulation, as explained above, primarily merely lays down a framework for screening activities conducted by the EU Member States. If such screening activities are “taken time in time of war or other emergency in international relations”, then Art. XXI(b)(iii) clearly could be invoked, in principle. 58

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The GATS Security Exceptions As Isolated Parameters in EU Court Proceedings?

By way of a brief final excursus a view recently submitted in the literature should be addressed, which, if correct, would considerably increase the importance of the GATS for investment screening within the EU legal order. In this regard it needs to be recalled that the GATS relies upon a scheduling approach, pursuant to which the GATS most-favoured-nation-obligation does not apply to sectors exempted by a given WTO Member from the scope of this obligation. Similarly, the GATS national treatment and market access provisions apply only to those sectors which a given WTO Member has explicitly listed in its schedule of country-specific commitments.59 As has been explained above, if a WTO Member has undertaken such a commitment (or has not exempted a given sector from the most-favoured-nation obligation), then a Member which is found to have violated any of these obligations can attempt to justify such an infringement under the general exceptions or the security clauses of the GATS (Art. XIV(a) and Art. XIVbis, respectively). It has, however, been submitted in the literature that the EU Screening Regulation has incorporated “the definition of essential security interests and public order” of Art. XIV(a) and Art. XIVbis of the GATS in isolation from other GATS parameters. It seems to follow from this view that foreign investors could proceed against screening of their FDI before EU and Member State courts on the basis of these “isolated” standards60 as requirements of EU law, irrespective of whether there are relevant sector-specific GATS commitments and irrespective of whether any such commitments have actually been violated by an EU Member State. This view appears to overlook, first, that WTO law cannot, in principle, be invoked by private persons in the EU.61 Moreover, even if the ECJ were to change its view on this (lack of) direct effect of WTO law in the EU (of if the EU Commission were to invoke Art. XIV(a) and Art. XIVbis in infringement proceedings before the ECJ),62 then the concepts of “essential security interests and public

59

Cf. above, Sect. 4.3.1. Velten (2020), p. 9. Velten argues in relevant part that the reference in the EU Screening Regulation to the GATS “goes beyond simply ensuring that the Regulation, Member State screening mechanisms, and individual FDI screening comply with WTO law, or that they will prevail in WTO dispute settlement. EU and Member States may reach compliance with WTO law by many more parameters, in particular a lack of sector-specific commitments, other available grounds of exception, or a lenient burden of proof in dispute settlement. Instead, the Regulation incorporates the definition of essential security interests and public order pursuant to arts XIV (a) and XIVbis GATS, isolated from other GATS parameters. As a result, if foreign investors proceed against screening of their FDI, the definition of the GATS notions will be subject to review by EU and Member State courts”. 61 Cf. above, Sect. 3.3. 62 On this possibility cf. above, Sect. 3.3. 60

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order” could not be regarded as self-standing grounds for bringing complaints, as they are part of exception clauses. It is submitted here that the Screening Regulation does not change this legal situation: On the one hand, it merely clarifies that the EU Member States may screen foreign investments for security and public order reasons63 and, on the other hand, confirms that such screening activities must be in conformity with the GATS. In this regard, the Regulation does not merely refer to Arts. XIV(a) and XIVbis of the GATS (and therefore does not make them self-standing standards for judicial review), but to the “international commitments undertaken in the. . .WTO” as a whole.64 This impression is not altered by Recital 35 of the Regulation, which merely reminds the EU and its Member States that “the implementation of this Regulation. . .should comply with the relevant requirements for the imposition of restrictive measures on grounds of security and public order in the WTO agreements, including, in particular, Art. XIV(a) and Art. XIVbis of the. . .GATS”: this is because “relevant requirements” for the imposition of trade-restrictive measures in the GATS are not only the GATS exception clauses (mentioned by way of example in this Recital), but the GATS’ basic obligations and relevant Member-specific commitments, too. It follows that if a screening measure of an EU Member State were to be challenged before EU courts on the basis of the Regulation and the Regulation’s reference to the GATS, then it would first have to be shown that a GATS obligation has been infringed by such screening activities. Only if such a prima facie infringement of the GATS has been established would it be necessary, secondly, to proceed to the question as to whether such a screening activity could be justified under Art. XIV(a) or Art. XIVbis of the GATS. This view is also in line with the aforementioned Lex CEU ruling, where the ECJ had first determined whether the Member State in question, in casu Hungary, had entered into specific commitments under the GATS and whether the latter had been violated. Only then has the ECJ taken the remaining step of ascertaining whether Hungary’s measure could be justified on the basis of Art. XIV(a) of the GATS.65 In short, the EU Screening Regulation has not increased the relevance of the GATS within the EU legal order by turning Arts. XIV(a) or XIVbis into selfstanding or “isolated” grounds for judicial review before the ECJ or national courts.

63

Cf. above, Sect. 3.4. Recital 3 of the Screening Regulation. 65 Cf. above, Sect. 3.3. 64

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References Fassion J, Natens B (2020) The EU proposal for FDI control: the WTO on the sidelines? In: Bourgeois JHJ (ed) EU framework for foreign direct investment control. Wolters Kluwer, Alphen an den Rijn, pp 121–134 Schill SW, Briese R (2009) “If the state considers”: self-judging clauses in international dispute settlement. In: von Bogdandy A, Wolfrum R (eds) Max Planck Yearbook of United Nations Law, vol 13. Brill, Leiden, pp 51–140 Van den Bossche P, Zdouc W (2022) The law and policy of the World Trade Organization, 5th edn. Cambridge University Press, Cambridge Velten J (2020) The investment screening regulation and its screening ground “Security or Public Order”: how the WTO law understanding undermines the regulation’s objectives, available via https://repository.graduateinstitute.ch/record/298429?_ga=2.7440050.1223939625.166660414 9-2031466909.1666604148 Voland T, Slobodenjuk D (2020) EU VO 2019/452 [=commentary on the EU investment screening regulation]. In: Krenzler HG, Herrmann C, Niestedt M (eds) EU-Außenwirtschafts- und Zollrecht, 16th instalment. C.H. Beck, München Winner M (2022) Kontrolle ausländischer Direktinvestitionen in Österreich. In: Winner M (ed) Kontrolle ausländischer Direktinvestitionen in Mittel- und Osteuropa. Facultas, Vienna, pp 121–175

Chapter 6

Summary of Conclusions

This study has examined the relevance of WTO law for the design and application of investment screening mechanisms. As explained by way of introduction, the distinct worldwide increase in the use of such mechanisms is in particular motivated by heightening sovereignty concerns, political re-orientations, and the rise of new powers, such as China. Whereas investment screening mechanisms had in the past been used in particular to evaluate whether inward FDI would result in economic benefits, investment screening mechanisms are now increasingly employed by potential host states to protect their national security and public order. This analysis has used the concrete example of the EU framework for investment screening as a “test case” in order to illustrate the importance that central principles of WTO law may have for screening activities. The main conclusions of this analysis can be summarized as follows:

6.1

Conclusions on the Level of WTO Law

1. The importance of WTO law for investment screening activities is substantial. This is in particular due to the broad scopes of the GATT and the GATS, which apply to any measures that potentially affect trade in goods, services or investments (“commercial presence” in GATS terminology). Hence, measures employed to screen investments that potentially produce such (side) effects come under the ambit of the GATT and the GATS, in principle. The risk that investment screening activities could be challenged before the WTO law is also demonstrated by relevant GATT/WTO panel proceedings. 2. This study has shown that the obligations that are most relevant for investment screening mechanisms are the most-favoured-nation, national treatment, market access and transparency obligations laid down in the GATT and the GATS, respectively. By contrast, the TRIMs Agreement predominantly confines itself to confirming the applicability of relevant GATT obligations. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 E. Vranes, Investment Screening and WTO Law, SpringerBriefs in Law, https://doi.org/10.1007/978-3-031-46724-0_6

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6

Summary of Conclusions

3. This analysis has examined the concrete consequences of the aforementioned GATT and GATS obligations for the design and application of investment screening mechanisms, taking into account pertinent WTO panel and Appellate Body reports. Some of these WTO dispute settlement proceedings have been explicitly concerned with investment screening activities. Several other reports analyzed in this study have proven highly relevant, too, given that their conclusions can be transposed to investment screening. 4. The present analysis has referred to several instances of potential violations of WTO obligations that may arise in the context of screening activities. Such prima facie violations of WTO obligations can theoretically be justified under pertinent WTO exception clauses. The exceptions most relevant in the investment screening context are the “general exceptions” and the “security exceptions” of the GATT and GATS. 5. As regards the so-called “general exceptions”, the clauses making it possible to justify restrictive measures on grounds of “public order”, “shortages of supply” and other “laws or regulations which are not inconsistent” with the GATT are particularly important for investment screening (i.e. Art. XX(d) and XX(j) of the GATT and Art. XIV(a) of the GATS, respectively). Additional requirements follow from the “Chapeaus” of these provisions. (a) The standard of review that is applied under central criteria in these provisions varies in pertinent WTO panel and Appellate Body reports. (b) A close analysis of these reports reveals several hurdles that may prove difficult to overcome in attempts to justify potentially trade-restrictive screening activities. (c) Thus, it has e.g. been found that “shortages of supply” in the sense of Art. XX (j) of the GATT can only be assumed, if the products at issue are “presently in short supply”.1 This approach could constitute a considerable obstacle for justifying investment screening activities that are meant to prevent future shortages of supply with energy or medical products. (d) A series of further obstacles ensuing from the jurisprudence under these “general exceptions” clauses may likewise prove problematic in the justification of trade-restrictive investment screening activities, as has been pointed out in this analysis. 6. Whereas the “security exceptions” of the GATT and GATS had not been applied in GATT/WTO dispute settlement for decades, recently a series of panel reports have been issued in high-profile cases. These reports offer important insights as to the interpretation of the security exceptions. (a) As a matter of considerable systemic importance, these panel reports have clarified that the mere invocation of the WTO “security exceptions” does not automatically oust a panel’s jurisdiction.

1

Cf. above, Sect. 4.4.1.3. and Sect. 5.3.1.

6.2

The Example of EU Investment Screening Assessed Under WTO Law

67

(b) The wording in the GATT security exception making it possible for WTO Members to justify measures taken “in time of [. . .] emergency in international relations” has been interpreted by these panels as being amenable to objective judicial review (cf Art. XXI(b)(iii)). This reasoning arguably holds true also for the other grounds of justification mentioned in the “security exceptions” of the GATT and the GATS. All of these other grounds of justification are highly significant for investment screening undertaken for security reasons as well. (c) Similarly to WTO jurisprudence under the “general exceptions” clauses of the GATT and GATS, WTO panels addressing the “security exceptions” have indicated that the standard of review applied in concrete cases may vary under these exceptions. Thus, it has e.g. been clarified with respect to the concept of “emergencies in international relations” that the closer a concrete instance of such an emergency is to armed conflict, the more plausible it appears prima facie that a WTO Member’s essential security interests may be at stake and the lower a WTO Member’s burden of argumentation will accordingly be. (d) Furthermore, as in the case of the “general exceptions” of the GATT and GATS, the introductory clauses (Chapeaus) of the “security exceptions” may turn out to constitute considerable obstacles for justifying potentially traderestrictive screening activities relating to security interests. 7. This study has moreover pointed to a problem that is frequently overlooked, namely the fact that the scopes of application of the GATT and the GATS overlap to a considerable degree. This inter alia incurs the risk that screening activities that are undertaken in sectors, where a given WTO Member has not undertaken any GATS commitments, could nevertheless be challenged indirectly under the GATT, to the extent that such screening measures potentially affect trade in goods.

6.2

The Example of EU Investment Screening Assessed Under WTO Law

8. The EU Screening Regulation can be seen as an outcome of the global political re-orientation that has resulted in the aforementioned surge of investment screening activities. 9. Due to divergent economic interests and national security concerns among the EU Member States, the Regulation constitutes a rather loose framework which is primarily meant to coordinate national screening mechanisms. 10. The Regulation confirms that the EU Member States have the competence to decide whether to establish national screening mechanisms, recalling, however, that screening must be in conformity with international economic law and WTO law, in particular. However, potential of violations of WTO law are not per se prevented by such “hortatory” wording.

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6

Summary of Conclusions

11. Overlooking the relevant disciplines in WTO law would also prove problematic within the EU legal order, given that WTO law constitutes an integral part of EU law that can be enforced in infringement proceedings before the ECJ, as has been recalled in recent ECJ case law. 12. The risk of violations of relevant WTO obligations tends to increase with the regulatory “density” of EU and national rules governing investment screening.2 Thus, the risk that the EU Screening Regulation as such violates the standards laid down in the GATT and GATS is rather low due to its loose framework character; this potential is rather low also as respects statutory rules like most of those in the example of the Austrian Act on Investment Screening referred to in this study. The risk of violations of WTO law tends to be highest as regards administrative measures and decisions in the application of screening mechanisms in individual cases. 13. In this regard, there are clear risks that screening activities for instance violate the MFN clauses and other WTO obligations such as the transparency disciplines laid down in the GATT and GATS. 14. As indicated, possible violations of WTO law, arising in the concrete context of the example of EU investment screening, could potentially be justified under the exception clauses of the GATT and GATS. (a) In this respect, the present analysis of the example of EU investment screening has pointed to a series of hurdles that may render such justification difficult. Thus, for instance, the “risk nexus”, defined in the EU Regulation, between a concrete foreign direct investment on the one hand and security and public order concerns on the other hand appears problematic, given that the EU Regulation uses the concept of whether a given investment is “likely to affect” security or public order. By contrast, the GATS is noticeably stricter, in that it requires a “genuine and sufficiently serious threat to. . .one of the fundamental interests of society”. The example of the implementation of the EU Regulation in Austrian law gives rise to similar concerns. (b) Another highly relevant obstacle can e.g. be found in the Chapeau of Art. XIV of the GATS: Due to the “consistency test” applied in WTO dispute settlement practice in this context, it may prove difficult to justify screening activities addressing foreign FDI, if no similarly strict measures are taken with regard to domestically controlled companies which could come under undue foreign influence.3 (c) A further example raising concerns under WTO law are attempts in the EU Regulation aiming to ensure supply of critical inputs such as energy and supply of food. As mentioned above, screening measures affecting trade in

2 3

See also see also Fassion and Natens (2020), p. 131 ff. Cf. above, Sect. 4.4.2.2. and Sect. 5.3.1.

Reference

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such products could, according to a pertinent WTO panel report, apparently only be justified, if such goods are “presently” in short supply. (d) Further instances causing concerns under WTO law have been discussed in Chap. 5 of this study. 15. Overall, findings of violations of WTO law caused by screening activities depend to a considerable extent on the standard of review applied by WTO panels and the corresponding scope of action left to WTO Members. The panel reports analysed in this study offer valuable guidance in this crucial respect as well.

Reference Fassion J, Natens B (2020) The EU proposal for FDI control: the WTO on the sidelines? In: Bourgeois JHJ (ed) EU framework for foreign direct investment control. Wolters Kluwer, Alphen an den Rijn, pp 121–134

Table of Cases

GATT 1947 and WTO Disputes and Panel Reports Argentina – Hides and Leather, WT/DS155/R, adopted 16 February 2001, DSR 2001:V, 1779 Canada – Administration of the Foreign Investment Review Act, L/5504, adopted 7 February 1984, BISD 30S/140 (Canada – FIRA) Canada – Certain Measures Concerning Periodicals, WT/DS31/R, adopted 30 July 1997, DSR 1997:I, 481 China – Electronic Payment Services, WT/DS413/R and Add.1, adopted 31 August 2012, DSR 2012:X, 5305 Colombia – Measures Relating to the Importation of Textiles, Apparel and Footwear – Recourse to Article 21.5 of the DSU by Colombia/Colombia – Measures Relating to the Importation of Textiles, Apparel and Footwear – Recourse to Article 21.5 of the DSU by Panama, WT/DS461/RW and Add.1, circulated to WTO Members 5 October 2018, appealed 20 November 2018 European Communities – Regime for the Importation, Sale and Distribution of Bananas, Complaint by the United States, WT/DS27/R/USA, adopted 25 September 1997, as modified by Appellate Body Report WT/DS27/AB/R, DSR 1997:II, 943 (EC – Bananas III) European Communities – Information Technology Products, WT/DS375/R, WT/DS376/R, WT/DS377/R, adopted 21 September 2010, DSR 2010:III, 933 European Union and its Member States – Certain Measures Relating to the Energy Sector, WT/DS476/R, circulated to WTO Members 10 August 2018 [appealed by the European Union on 21 September 2018] (EU – Energy) Panel Report, Panel on Japanese Measures on Imports of Leather, 15 May 1984, L/5623 India – Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/R, adopted 14 October 2016 (India – Solar Cells)

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 E. Vranes, Investment Screening and WTO Law, SpringerBriefs in Law, https://doi.org/10.1007/978-3-031-46724-0

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Italian Discrimination Against Imported Agricultural Machinery, L/833, adopted 23 October 1958, BISD 7S/60 Japan – Taxes on Alcoholic Beverages, WT/DS8/R, WT/DS10/R, WT/DS11/R, adopted 1 November 1996, as modified by Appellate Body Report WT/DS8/ AB/R, WT/DS10/AB/R, WT/DS11/AB/R, DSR 1996:I, 125 (Japan – Alcoholic Beverages II) Russia – Measures Concerning Traffic in Transit, WT/DS512/R and Add.1, adopted 26 April 2019, DSR 2019:VIII, 4301 (Russia – Traffic) Saudi Arabia – Measures Concerning the Protection of Intellectual Property Rights, WT/DS567/R and Add.1, circulated to WTO Members on 16 June 2020, dispute terminated while appeal pending (Saudi Arabia – IPRs) United States – Restrictions on Imports of Tuna, (unadopted) DS21/R – BISD 39S/155, 3 September 1991 (US – Tuna I). United States – Section 337of the Tariff Act of 1930, adopted 7 November 1989, L/6439 United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/ R, adopted 20 May 1996, as modified by Appellate Body Report WT/DS2/AB/R, DSR 1996:I, 29 (US – Gasoline) United States – Gambling and Betting Services, WT/DS285/R, adopted 20 April 2005, WT/DS285/AB/R, DSR 2005:XII, 5797 United States – Certain Measures on Steel and Aluminium Products, WT/DS544/R, Add.1 and Suppl.1, circulated to WTO Members 9 December 2022 (US – Steel (China)) United States – Certain Measures on Steel and Aluminium Products, WT/DS552/R, Add.1 and Suppl.1, circulated to WTO Members 9 December 2022 (US – Steel (Norway)) United States – Certain Measures on Steel and Aluminium Products, WT/DS556/R, Add.1 and Suppl.1, circulated to WTO Members 9 December 2022 (US – Steel (Switzerland)) United States – Certain Measures on Steel and Aluminium Products, WT/DS564/R, Add.1 and Suppl.1, circulated to WTO Members 9 December 2022 (US – Steel (Turkey)) United States – Origin Marking Requirement, WT/DS597/R, circulated to Members 21 December 2022

WTO Appellate Body Reports Australia – Measures Affecting Importation of Salmon, WT/DS18/AB/R, adopted 6 November 1998, DSR 1998:VIII, 3327 (Australia – Salmon) Brazil – Certain Measures Concerning Taxation and Charges, WT/DS472/AB/R and WT/DS497/AB/R, adopted 11 January 2019, DSR 2019:I, 7

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European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:II, 591 (European Communities – Bananas III) European Communities – Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R, adopted 5 April 2001, DSR 2001:VII, 3243 (EC – Asbestos) European Communities – Seal Products, WT/DS400/AB/R and WT/DS401/AB/R, adopted 18 June 2014, DSR 2014:I, 7 Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97 (Japan – Alcoholic Beverages II) Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/ AB/R, WT/DS169/AB/R, adopted 10 January 2001, DSR 2001:I, 5 (Korea – Beef) United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/ AB/R, adopted 20 May 1996, DSR 1996:I, 3 (US – Gasoline) United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998, DSR 1998:VII, 2755 (US – Shrimp) United States – Tax Treatment for “Foreign Sales Corporations”, WT/DS108/AB/ R, adopted 20 March 2000, DSR 2000:III, 1619 (US – FSC)

Cases Decided By the European Court of Justice Case 181/73, R. & V. Haegeman v. Belgian State, ECLI:EU:C:1974:41 Case 70/87, EEC Seed Crushers’ and Oil Processors’ Federation (FEDIOL) v. Commission of the European Communities EU:C:1989:254 Case 222/86, Heylens, ECLI:EU:C:1987:442 Case C-69/89, Nakajima All Precision Co. Ltd v. Council of the European Communities, ECLI:EU:C:1991:186 Case C-280/93, Federal Republic of Germany v. Council of the European Union, ECLI:EU:C:1994:367 Case C-61/94, Commission v. Germany, ECLI:EU:C:1996:313 Case C-326/07, Commission v. Italy, ECLI:EU:C:2009:193 Case C-212/09, Commission v. Portugal, ECLI:EU:C:2011:717 Case C-35/11, Test Claimants in the FII Group Litigation, ECLI:EU:C:2012:707 Case C-244/11, Commission v Hellenic Republic, ECLI:EU:C:2012:694 Case C-66/18, Commission v. Hungary, ECLI:EU:C:2020:792