Friday, July 9, 2010

New EU-Wide Investment Policy

As a region, the EU is the most significant global investment player. It is the world's leading host of Foreign Direct Investment (FDI) as well as the world's biggest source of FDI outside the EU. By 2008 outward stocks of the EU FDI amounted to € 3.3 trillion while EU inward stocks accounted for € 2.4 trillion. 


According to a recent press statement, the EC has now formulated a comprehensive investment policy which will seek to integrate investment liberalisation and investment protection.  Under the Lisbon Treaty, investment is one of the areas covered by the EU common commercial policy which is developed and managed at the European level giving the EU a strengthened negotiating leverage. However, there are 1200 Bilateral Investment Treaties (BITs) concluded by individual EU Member States and other countries. In addition, the European Commission (EC) as a legal entity is also negotiating investment agreements, for instance with African countries, as part of the Economic Partnership Agreements (EPAs). 

To address this anomaly, the  EC has released a comprehensive investment package which consists of: 

(2) a draft regulation which sets up transitional arrangements offering guarantees to existing or pending BITs concluded between EU and Non-EU countries prior to the enforcement of the Lisbon Treaty. Here, the Commission has provided legal security for European and foreign investors, without hampering the EU's ability to negotiate new investment treaties at EU level.  

The EU Member States together account for almost half of the investment agreements currently in force around the world. However, not all Member States have concluded such agreements, and not all agreements provide for the same high or equivalent level of standards. According to the EC, this leads to an uneven playing field for EU companies investing abroad, depending on whether they are covered as a "national" (granted national treatment) under a certain Member State BIT or not. 


Another feature of the agreements of individual EU Member States is that they relate to the treatment of investors “post-entry” or “post-establishment” only. This implies that Member States’ BITs provide no specific binding commitments regarding the conditions of entry, neither from third countries regarding outward investment by companies originating in EU Member States, nor vice versa. Here the EC might want to be guaranteed non discriminatory pre-establishment MFN Status.  Gradually, the European Union has begun the process of filling the gap of "entry" or "admission" through both multilateral and bilateral agreements at EU level, covering investment market access and investment liberalization, ensuring the non-discriminatory treatment of investors upon entry to a third country market.

The EC recognizes that a one-size-fits-all model for investment agreements with 3rd countries would be neither feasible nor desirable. Therefore the EC will have to take into account each specific negotiating context. However since actual trade and investment flows are in and of themselves important determinants for defining priorities, the EC indicates that they should go where its investors would like to go, through the liberalisation of investment flows. The policy paper identifies some candidates for a full investment agreement including India, Canada, Mercosur and where possible China and Russia, but also states that should a comprehensive, across-the-board, investment agreement with a country, or a set of countries, prove impossible or inadvisable, sectoral agreements may be an option whose desirability, feasibility and possible impact would have to be further assessed.

On the specifics of the approach, the EC would look beyond FDI and protect all the operations that accompany investment and make it possible in practice e.g. payments, the protection of intangible assets such as Intellectual Property Rights, etc. Enforcement is also addressed and identified as a key issue in the new policy. Currently, the EC has included in all of its recent FTAs, an effective and expedient state-to-state dispute settlement system. In addition, investor-state dispute settlement will be featured since it is a key part of the inheritance that the Union receives from its Member State BITs.  

However there is a uniqueness of investor-state dispute settlement in international economic law which impacts the EC's mandate in this area. For example, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention), is open to signature and ratification by Member States of the World Bank or those party to the Statute of the International Court of Justice. The European Commission does not qualify under either.  This new investment policy paper however proposes that the EC could seek accession to the ICSID, but notes that this would require modification of its convention.


A key outcome of this policy is that the EC may request renegotiation of existing BITs by individual member States. "The Commission will review the existing MS BITs. If it finds clauses that are incompatible with EU law (e.g. transfer clauses that would hamper the implementation of EU financial restrictions against a certain third country), it would ask the Member State to renegotiate such clause. If this proves impossible, the authorisation may be withdrawn as a matter of last resort.  Likewise, authorisations can be withdrawn if the EU negotiates an investment treaty at European level, and recourse to Member State BITs with the same third country is not necessary anymore."

While FDI will be within the full competence of the EC, the expectation is that by following available best practices, they would ensure that no EU investor would be worse off than they would be under Member States' BITs. Member States will however have scope to pursue and implement investment promotion policies that complement and fit well alongside the common international investment policy. In addition, BITs maintained by Member States may require amendments in order to bring them in compliance with EU law. The same framework is intended to be available also for Member States that would like to negotiate and conclude new investment treaties with countries, which are not targeted for EU-wide investment agreements, e.g. for foreign policy purposes.  

Overall, this is an interesting development in the wake of the EPA services and investment negotiations and should be studied carefully in light of the scope of the EC's investment text which covers all economic sectors including services i.e.: A) Agriculture, hunting and forestry; B) Fishing; C) Mining and quarrying; D) Manufacturing; and E) Production, transmission and distribution on own account of electricity, gas, steam and hot water. It is therefore useful to note that sectoral agreements rather than comprehensive investment agreements could be considered a viable option where feasible. 


One should also note that on "policy space" the EC's approach will be to ensure that the EU common investment policy fits in with the way the EU and its Member States regulate economic activity within the Union and across its borders. ...."EU investment policy has to be consistent with the other policies of the Union and its Member States, including policies on the protection of the environment, health and safety at work, consumer protection, cultural diversity, development policy and competition policy.African States negotiating investment chapters in the EPA could opt to also ensure compatibility of proposed EPA investment provisions with their own development policies.



1 comment:

Lynette Gitonga said...

this piece is useful. http://ictsd.org/i/news/tni/59585/

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