Economics Leadership

EFTA Court – impact on business and our emerging new world order: former EFTA Court President Carl Baudenbacher

Former President of the EFTA Court, Carl Baudenbacher

Former President of the EFTA Court, Carl Baudenbacher
Former President of the EFTA Court, Carl Baudenbacher

Gerhard Fasol: Professor Baudenbacher, could you explain in simple terms, what the EFTA Court and your work leading the EFTA Court for many years, means for businesses in Europe, and also businesses in Japan.

Carl Baudenbacher: The EFTA Court is the second tribunal in the European Economic Area (EEA) next to the Court of Justice of the European Union (ECJ). The EEA consists of the EU and its 28 (soon 27) Member States which form one pillar and the three EFTA States Iceland, Liechtenstein and Norway which form the other pillar. Businesses from these countries have access to the EFTA Court. That includes Japanese companies which are active in Europe. I should add that a group of leading Japanese professors from the universities of Waseda, Tokyo and Kyoto have for many years been doing research concerning the EFTA Court.

Gerhard Fasol: Can you illustrate the impact of the EFTA Court with an example? What do you consider your most important case?

Carl Baudenbacher: In Fosen-Linjen (E-16/16), we decided that a public authority which awards a public contract to the wrong bidder, may be liable for a simple breach of public procurement rules and not only for a serious breach. This judgment may have an impact on the jurisprudence of the ECJ, but also of the highest courts, say, in the U.K., Sweden, Norway, Denmark. It could also be that it influences a Japanese court.

Our most important case was probably Icesave (E-16/11) where we held that in a systemic financial crisis a State is not liable for the incapability of its banks’ deposit guarantee scheme to compensate depositors in other countries.

Gerhard Fasol: Do I understand correctly, that the EFTA Court is focused on the relationship between Governments and business. Surely the impact is bigger and beyond Government and business only?

Carl Baudenbacher: The EFTA Court decides cases involving the relationship between Governments and business, for example concerning ownership in energy companies or concerning taxation but also between businesses, for example conflicts between banks and insurance companies and consumers.

Former President of the EFTA Court, Carl Baudenbacher
Former President of the EFTA Court, Carl Baudenbacher

Gerhard Fasol: Professor Baudenbacher, you devoted your life to lead the development of international business law, which is at the core of the post WW2 rule based global system, which is now faced with stronger nationalism, in particular the Trump presidency.

Can you explain us what you see as your main achievements, and do you feel these achievements are now in danger in view of recent political developments?

Carl Baudenbacher: I have been a university professor in Switzerland, Germany, the US and Iceland, an author, arbitrator, corporate and political consultant, and a European judge. As a professor, I have founded the post graduate program Executive Master of International Business Law of the University of St. Gallen. This autonomous global program entertains cooperations with American and Asian universities. In Japan, Waseda is our partner. My main achievement has probably been the positioning of the EFTA Court as a voice to be heard. The establishment of international courts, such as the ECJ, the EFTA Court or the WTO Appellate Body has been called the “judicialisation” of international law. This has been beneficial for businesses. With the Trump presidency, there is the risk that the rule based global system will be replaced by archaic mechanisms such as retaliation. Free trade has already suffered and will further suffer.

Gerhard Fasol: While we do see this emergence of nationalism, important major trade agreements between the EU and Japan, between the EU and Canada and many others have been agreed. From your experience leading the EFTA Court, do you think we will see a future of several ECJ or EFTA-type courts for different regional trade groups? Or will we go back to national courts, driven by renewed nationalism?

Carl Baudenbacher: What we are seeing is in all likelihood more than a crisis of the post WW2 global trade system. The former German Foreign Minister Joschka Fischer speaks of the end of the Pax Americana. I leave the question open whether the EU has done its homework as regards its trade balance. A natural reaction to the American move would be that Europe and Asia move closer together. If global trade is in peril, regional trade agreements come to the fore. In my experience, regional courts such as the ECJ and the EFTA Court offer a lot of advantages. But the judges must be aware that they cannot interfere excessively with the sovereignty of the Member States. At the same time, going back to national courts is in my view no solution.

Former President of the EFTA Court, Carl Baudenbacher
Former President of the EFTA Court, Carl Baudenbacher

Gerhard Fasol: You often refer to judicial dialogue. Why do you think judicial dialogue is so defining for your work at the EFTA Court, what is its importance beyond? How do you see criticism?

Carl Baudenbacher: What I mean with judicial dialogue is the dialogue between high courts. In Europe, we see such interaction between the ECJ, the EFTA Court and the European Court of Human Rights. National Supreme Courts may also be involved. Let me give you an example. In many countries around the globe dockers have been able to impose collective agreements on ship owners that give them a priority right to load and unload ships. In 2016, the EFTA Court ruled in the landmark case Holship (E-14/15) that such a system is incompatible with competition law. The Supreme Court of Norway has followed the EFTA Court. The Norwegian unions have now brought the matter before the European Court of Human Rights. At stake is, inter alia, the right of businesses to employ non-organised dockers. Sooner or later, this question will also arise in the ECJ. Obviously it could also end up before any other high court in the world. Then it would be natural for that court to look into how other courts have resolved the problem.

Gerhard Fasol: How do you see the developments between EU, UK, EFTA and Switzerland? You are actively promoting the EFTA court, and by extension EFTA for a possible future home for the UK. Where do you see the advantages for EFTA and UK – keeping in mind that EFTA was co-founded by UK.

Carl Baudenbacher: The UK intends to leave the EU because it wants to limit integration to economic matters; it doesn’t want to be part of a political Union. EFTA which was founded under British leadership is an intergovernmental club which focuses on trade. The EFTA Court has in its case law upheld EFTA values such as free trade, open markets, efficiency, a modern image of man.

Gerhard Fasol: Finally, here in Japan many business people are concerned with Brexit – especially Japanese manufacturing and financial companies have a strong presence in the UK. How do you see Brexit – from your neutral Swiss viewpoint, and from your EFTA Court viewpoint – both outside the EU. How do you see Europe develop?

Carl Baudenbacher: The Brexit decision of June 2016 was obviously a shock for Japanese businesses which had used the UK as a gateway to the EU. I have already elaborated on this at Keidanren on 1 September 2016 and then again in September 2017 at RIETI. But the British people have spoken. In my view it would be crucial for Britain to retain access to the EU single market. This would also be important for Japanese investors. The countries which are members of the EFTA Court do have this access. If Britain would subject itself to the EFTA Court, Switzerland might do the same. We would then have two structures in Europe and consequently a certain systemic competition.

Former President of the EFTA Court, Carl Baudenbacher
Former President of the EFTA Court, Carl Baudenbacher

Carl Baudenbacher – Profile

Professor Dr. iur. Dr. rer. pol. h.c. Carl Baudenbacher has served as a judge on the EFTA Court in Luxembourg from September 1995 to 9 April 2018. From 2003 to 2017 he was the Court’s President. Baudenbacher was the Judge Rapporteur in many of the Court’s landmark cases.

From 1987 to 2013, Carl Baudenbacher was the Chair of Private, Commercial and Economic Law at the University of St. Gallen (Switzerland). Between 1993 and 2004, he was a permanent visiting professor at the University of Texas at Austin. In 1996 he founded the global autonomous program Executive M.B.L.-HSG of St. Gallen University which has a foot in Japan.

On 9 April 2018, Baudenbacher stepped down from the EFTA Court bench. He will open his own firm focusing on arbitration and corporate and government consulting. His special fields are EU and EEA law, Brexit and the relationship Switzerland – EU.

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