The Lisbon Treaty, in force since 1 December 2009, added Foreign Direct Investment (FDI) to the exclusive common commercial policy of the European Union, without foreseeing any transition measures. Today the European institutions are still wrangling over the scope and content of the new EU policy and the status of the more than 1200 existing bilateral investment treaties (BITS) of the member states.
The discussions turn around three sets of texts produced by the European Commission: a 7 July 2010 draft European legislation (regulation) that deals with the status of the existing BITs and the possibilities that the member states will have to (re-)negotiate BITs in the future ; a Communication released on the same date to the European Council and the European Parliament about the content of the new EU investment policy ; and the draft mandates for the first EU negotiations for investment protection chapters in EU free trade agreements.
The Council and Parliament are sharply divided on these three texts, placing the Commission in a difficult situation. According to the Lisbon Treaty the Council and the Parliament are co-legislators but it is the Council that gives negotiating mandates to the Commission, not the Parliament. However, since the consent of the Parliament is required to conclude negotiations, it has consistently warned the Commission that its views need to be reflected in the negotiated outcome.
Competing visions for an EU international investment policy
The Council’s 25 October 2010 response to the Commission’s Communication did not address the Commission’s suggestions for reform (rebalancing of rights, transparency, corporate social responsibility, etc) but called instead for an EU investment policy that would be based, as much as possible, on the existing practice of the member states.
The European Parliament, however, adopted a resolution on 6 April 2011 that at least recognised some of the flaws in the member states’ current practice, including the use of imprecise language which “allows international arbitrators to make broad interpretations of investor protection clauses, leading to the ruling out of legitimate public regulation” (§24). The Parliament also stressed that the ”future agreements concluded by the EU must respect the capacity for public intervention” (§23) and it noted that for investment agreements to benefit developing countries “they should […] be based on investor obligations in terms of compliance with human rights and anti-corruption standards…”(§37).
In addition, the European Parliament:
o stated that speculative forms of investment shall not be protected (§11);
o expressed its deep concern regarding the level of discretion of international arbitrators (§24) and
o called on the Commission to produce clear definitions of investor protection standards;
o proposed more precise wording with regard to non-discrimination and fair and equitable treatment (§19);
o stated with regard to expropriation that a clear and fair balance must be established between public and private interests (§19, 3rd indent);
o stressed the right to regulate, inter alia, for the protection of national security, the environment, public health, workers’ and consumers’ rights, industrial policy and cultural diversity (§25).
EU FTA negotiations add to pressure
The European Commission wants to use its new investment competence for the first time to add provisions on investment protection to three free trade agreements that it is currently negotiating with Canada, India and Singapore. To this end it tabled drafts in December 2010, January and February 2011 to alter the existing negotiating mandates for these three negotiations.
In a separate resolution on the EU-Canada free trade negotiations, adopted on 8 June, the Parliament, repeated its call “to respect the right of both parties to regulate, in particular in the areas of national security, the environment, public health, workers’ and consumers’ rights, industrial policy and cultural diversity” (§12). The Parliament added that it considered that “given the highly developed legal systems of Canada and the EU, a state-to-state dispute settlement mechanism and the use of local judicial remedies are the most appropriate tools to address investment disputes”. The Parliament also stressed that it expected the Commission to fully take into account its views while negotiating investment provisions with Canada.
However, the member state representatives in the Council’s Trade Policy Committee (TPC) reject all the suggestions of the European Parliament for more precise formulations of the protection standards.
By the second half of June, member states were still discussing three issues. First, many member states want it to be written in the mandate that investment protection is a mixed competence between the members and the union. Second, members want a clear view on how the responsibility of the EU and its members in dispute settlement will be arranged before they give the mandate. However such an arrangement probably requires another legal initiative and thus the consent of the Parliament. Third, several member states, which are the most attached to their own BIT approach, prefer to postpone investment protection negotiations with Canada to avoid that the first EU investment protection text will be modelled after the Canadian investment treaties. It is indeed likely that Canada will not be willing to deviate extensively from its own model text, which is more precise and requires transparency in investor-state proceedings, both characteristics, many hard-liner member states wish to avoid. Apparently, those EU member states believe that Singapore and India would be more willing to follow the EU member state type model.
Member states don’t want the Commission to interfere with their BITs
As for the draft regulation on the existing BITs of the member states and their possibility to (re-)negotiate BITs in the future, the negotiations between the Council and the Parliament, launched at the end of June promise to be difficult. This is despite the fact that Parliament adopted amendments to the draft regulation on 10 May that already substantially watered down the proposals of its Rapporteur, Carl Schlyter, who subsequently voted against the amendments, together with the Green, Left and Social-Democratic groups. The Christian-Democratic-Liberal-Conservative majority have already rejected a sunset clause, simplified procedures and reduced the grounds on which authorisation could be withdrawn. But this is still unacceptable for many member states, which insist that their BITs do not require any authorisation at all, let alone that it could be withdrawn by the Commission
Author: Marc Maes is Trade Policy Officer of the Belgian NGO coalition 11.11.11