From a recent EU DG Trade civil society meeting on trade and investment:
Jean François Brakeland debriefed on the state of play of the preparatory work conducted by the Commission in order to implement the EU exclusive competence on FDI, as conferred by the Lisbon Treaty. He started his presentation with an overview of the scope of the draft Regulation establishing transitional arrangements for Bilateral Investment Treaties (BITs) between Member States and third countries, focusing on its main features such as authorisation to maintain BITs in force and to amend or conclude new BITs.
Subsequently, he presented Commission thinking on how it intends to use the EU competence on investment in the future, referring to the draft Communication which would lay down foundations for the orientation of EU investment policy, as well as its future operationalisation in negotiating directives specific for each negotiating partner. He shared general intentions with respect to the EU investment policy coverage, standards of protection, dispute settlement mechanism, as well as a selection of potential partners for negotiating investment protection, but at the same time highlighted the need for a wider debate that should involve all stakeholders including the European Parliament and the Council.
And from some Q & A that followed:
European Services Forum requested clarification on the scope of the competence on investment, including whether the shift in competence might be questioned, and how new Member States BITs will be covered.
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The Coalition of Flemish North-South Movement questioned the rationale of re-delegation of
power to negotiate investment agreements back to Member States, claiming that Foreign Direct Investment being part of the Common Commercial Policy should be considered in a broader context of EU foreign policy, and thus could not be limited to investment protection objectives. It called upon the Commission to stop Member States continuing their BITs negotiations. It also raised concerns related to the conflict between Member States' demands for more investment protection at the cost of limited policy space and referred to the social and labour rights chapter of EU trade agreements, which should be equally applicable to protection provisions of EU investment agreements.M-Lex raised the issue of investor-to-state dispute settlement, enquiring about the availability of ICSID as an arbitration forum and the coverage of portfolio investment by the new EU competence.
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Several participants asked about the review clauses of already concluded agreements, including the Cariforum EPA and EU-Korea FTA that would allow for negotiating investment protection.
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Responding to these comments and questions, the Commission (J.F. Brakeland and C. Brown) explained the justification for the empowerment mechanism offered by the draft Regulation, in particular its relevance for curing BITs' incompatibilities with EU rules on capital movement, and gave assurances that the exercise of re-delegated power to negotiate BITs would be conditional and closely followed by the Commission as an observer.
As for ongoing negotiations, it referred to Member States' legitimate expectations relating to grandfathering and empowerment as a justification for the continuation of BITs' negotiations with third countries after entry into force of the Lisbon Treaty, although a legal risk was involved.
With respect to portfolio investment, the Commission explained the rationale for all-encompassing definition of investment as the economically justifiable option, even if portfolio investment was not explicitly mentioned as a part of the EU Common Commercial Policy. Referring to optimal standards of protection, the Commission emphasised the need to compromise the EU's divergent interests in order to find the acceptable balance, and finally to confront it with our partner's interests.
On the choice of negotiating partners, the Commission suggested that it would depend not solely on the EU interest, but also on our partners' willingness to engage. It would have implications on the form of any prospective investment agreement, being a part of a wider trade agreement or stand-alone BIT-like agreement. There is no one-size-fits-all solution.
Referring to the scope of commitments deriving from the existing BITs, the Commission explained that the draft Regulation would set a mechanism for notification of all existing BITs, as well as all disputes launched on their basis.
On arbitration, the Commission admitted that there were a number of issues that could be improved, including transparency of procedure but also clarity of provisions, although it excluded the European Court of Justice as an option for international arbitration.
Here's some commentary on the issue. Professor Armand de Mestral asks, "Is a model EU BIT possible—or even desirable?" His conclusion:
Surely a common legal standard regulating FDI in the EU is an eminently sensible goal: it would replace 27 competing jurisdictions with one high standard of protection; it would allow the EU to present a common face to the world on FDI issues; and it would serve as a powerful incentive to promoting global standards. But it would be foolish to minimize the obstacles that lie in the path of this laudable goal.
And from David Muller, a PhD. law student at Charles University, Prague:
... Would the European Model BIT provide significant enhancement of current regulations and would the EU really use it? Indeed, there are at least several profound obstacles to be analyzed. First, it may prove to be difficult to identify partners willing to negotiate BIT. Taking into account that the provisions of the model BIT are about the same, it would nevertheless probably always need some minor adjustments. However, the nature of partners in negotiations and the need for complex investment protection is diverse. For instance, imagine the specific needs of particular BIT with e.g. Russia, Canada and ASEAN. Second, it may be demanding to persuade Member States to support the new model with the assumption of an all-round approach, conclusion of EU BIT and consequent termination of their own BITs. Indeed, Member States must be able to identify explicit added value of model compared to their bilateral agreements. Third, the process of negotiation and conclusion of BIT is time consuming. For the most of Member States, it has taken decades to create their BITs networks – it would be vain to believe that the EU BITs, even using a well processed template, might by concluded in a few upcoming years. Fourth, negotiating capacities of the EU are definitely not unlimited. Having a model BIT would probably mean an improvement on condition that it is to be really carried out. Anyway, investment promotion and protection are nowadays covered sufficiently by the mix of the Member States BITs and FTAs provisions. Furthermore, the EU sources are supposedly too limited to anticipate major efforts of the EU to develop its own exclusive network of BITs in following years. In line with these concerns, the Model BIT is to be considered as a useful exercise and practice, but its scope of application seems currently to be dubious and limited.
The full piece is here.
