Law and democracy in an age of economic protectionism
How we treat foreign investors and traders in Europe is not just a matter of their rights. It is also a matter of our rights and interests. Whether we, as Europeans, can buy electronics from Chinese manufacturers is as much a matter of these manufacturers’ freedom to operate on the European market as it is a matter of our freedom to choose suppliers and to engage in trade with whom we want. Whether European contractors must compete with their Turkish counterparts for public infrastructure works in the EU is as much a matter of the Turks’ freedom to provide their services to European governments as it is a matter of our right to have our public funds spent efficiently. Obviously, these rights and freedoms are not absolute and can be limited for the sake of other important values. But the decision to do so is a consequential one.
It is generally in our best interest to ensure that foreign investors and traders are treated fairly and not discriminated against on our own turf—so that their foreign capital can also create opportunities and wealth in the EU, and so that workers, consumers and buyers in Europe have greater freedom of choice. At the same time, it is obviously also in our best interest that European businesses not face unfair or unethical competition at home from foreign operators from states that do not share our values, and use those operators not as agents of cooperation but as minions for achieving economic dominance. And that European businesses that wish to invest or trade abroad are treated fairly and not discriminated against in foreign host states.
To that end, we must be able to influence the policies of foreign states, and if necessary retaliate against them or pressure them, e.g. by restricting the ability of investors and traders from those states to operate on our own market. But when we do that, we must never forget that we are also restricting our own rights and hurting at least some of our own interests in the process. Hence, all restrictive, protectionist measures must comply with fundamental principles of law and must always be justified and proportionate. Not only for the sake of the targeted foreigners, whose rights we in Europe are proud to recognise and not restrict lightly or arbitrarily, but also for the sake of our own rights and welfare.
The difficulty is that it is always a gravely complicated question whether a restrictive regulation pursuing an economic foreign policy objective is justified and proportionate—much more complicated than when the same question is asked about a similar instrument of domestic economic policy. The facts needed to determine the proportionality of a regulatory measure in the international economic context are much more diverse and difficult to ascertain or compare, and they require a significantly more nuanced, subjective and impervious expertise to be properly analysed and addressed. At the same time, the question itself is not morally neutral—it often involves making hard philosophical choices between communitarian and liberal approaches.
Because it is such a highly specialised, technical and esoteric subject, judicial or constitutional review of regulations adopted in pursuit of international economic policy has always been limited. Importantly, however, in democracies the adoption of such regulations has always been vested in institutions that are subject to another kind of control—in officials who are responsible to the electorate. This democratic control would partly make up for the courts’ perennial difficulty in examining international economic policy. Regulators venturing into this field may enjoy broad deference from the courts, but they still have to stand up to democratic scrutiny. This democratic scrutiny has become much more important today, as with the onset of globalisation and the tech revolution the lines between internal and international economic policy have become almost completely blurred, and the electorate is now much more vulnerable and attuned to what their elected representatives do in the area of foreign trade.
From this perspective, the judgment of the European Court of Justice in the Kolin case (C-652/22) seems astonishing.
The case concerned a Turkish contractor which complained to the referring national court that it was mistreated in a public tender procedure conducted in an EU member state. The Court of Justice was asked to interpret provisions of EU public procurement law which the referring national court considered central to the case—but it refused to give an answer. It held that EU law was irrelevant for the national proceedings because the contractor in question, as an economic operator from a third country that did not have a treaty with the EU providing for mutual access to public procurement markets, was not entitled to the protection stemming from EU public procurement law. The Court of Justice went on to state that in the absence of relevant EU laws, the member state was not allowed to extend the same or similar protection to such third-country operators under the member state’s own laws. According to the court, it should be left to individual public buyers and employers (contracting authorities) to decide whether to admit third-country operators to tender procedures, and how to treat them (whether to treat them equally or discriminate against them, and if so, in what way).
In other words, the Court of Justice essentially ruled that when the EU does not exercise its international economic policy powers and does not regulate how foreign operators should be treated on the EU market, this matter cannot be regulated by the member states but must be left to the discretion of the specific contracting authorities. In other words, it is the contracting authorities who, in essence, should individually frame the EU’s international economic policy in such a situation. The court applied this thinking to public procurement. But if taken to its logical conclusion, it extends beyond that, for example to international investment policy. If the Court of Justice is right, then in the absence of EU investment treaties or internal EU laws on foreign investments, the member states cannot protect investors from third countries, and it should be left to government agencies, or even individuals, to decide how they should treat such foreign investors.
This is an obvious fallacy. It stems primarily from the tendency of the Court of Justice to treat international economic relations as a universe of its own. But especially in today’s world, there can be no real dividing line between internal and international economic policy. The lack of an international economic policy mostly just means that internal economic policy is conducted without the international agenda in mind. It is not possible to create a legal vacuum in the area of international economic relations, because the empty space is immediately filled by the law governing internal economic relations. The EU can claim supremacy in the field of common international economic policy. But it cannot, by inaction, restrict the ability of third-country businesses to operate on the European market. For that it must adopt proper regulations. And it cannot do that without affecting the rights and freedoms of its own citizens in the process.
This entails that such regulations should be enacted in a transparent and democratic process, and be subject to proper judicial and constitutional review. Not only for the sake of the rights of the affected third-country operators, but also for the sake of the rights of European citizens, who are also inevitably affected by such regulations. When the EU does not exercise its power to conduct international economic policy and does not regulate the situation of foreigners on the European market, that does not make them outlaws, regardless of what the Kolin judgment or some of its interpretations may suggest. Foreign operators are still protected by fundamental principles of European, national and international law, including the freedom to conduct economic activity and engage in trade, the general right to equal treatment and non-discrimination, and the right to an effective judicial remedy. This is not only because these are human rights, but also because they are corollaries of the rights and freedoms of European citizens, such as the right of the same citizens to freely engage in trade, and their right to effective competition, good administration and efficient public spending. Rights can be restricted, and third-country operators can be treated differently than nationals in many respects—in particular as regards their ability to operate on the local market. But only to the extent warranted by legislation that complies with the principles of democracy and the rule of law.
In Kolin the Court of Justice apparently attempted to create a legal lacuna in which European contracting authorities would be able to freely discriminate against third-country operators and do the EU’s bidding. But in doing that the court disregarded two fundamental principles. First, public measures that affect the rights of individuals, and involve answering difficult policy questions and weighing important values and interests, must be adopted in transparent, democratic processes. Second—and for the same reason of protecting democratic decision-making—public authorities, including state-owned companies spending public funds, must act in accordance with the law, and within the law. In the case of contracting authorities, this means that until they are empowered to do otherwise by proper, democratically adopted laws, they should be guided solely by considerations of economic efficiency. This is not because there are no other pressing factors that contracting authorities should also be allowed to take into account. Rather, it is because the question of what these factors are, and what their consequences should be, are matters of public policy to be decided in transparent and democratic procedures—not behind closed doors of bureaucratic and corporate offices.
Stanisław Drozd, adwokat, Dispute Resolution & Arbitration practice, Wardyński & Partners
