The Lisbon Treaty has shifted the competence related to Foreign Direct Investments (FDI) from the European Union Member States to the Union and has added it to the Union’s exclusive common commercial policy. This transfer of competence not only requires the development of a common EU investment policy, but also legislative steps to clarify the status of the 1200 existing Bilateral Investment Treaties (BITs) of the EU Member States and their ongoing BIT negotiations. This offers a unique opportunity for an assessment of the existing BITs and for an open and broad discussion on the future European international investment policy.
Indeed, the opportunity is quite unique given that international investment policy has traditionally been extremely exclusive and untransparent. Member states very rarely communicate or consult about their BIT programmes or negotiations, except with their investor and business community, which are often invited to participate in closed administrative working groups or to propose amendments to negotiating texts. The result of this secretive and exclusive decision-making process are imbalances in the investment treaties, which seek the maximum protection of transnational investors, offering extraordinary privileges (like the right to by-pass domestic courts to challenge government policies before secretive international arbitration), without corresponding obligations for investors, and little to no regard for other private or public interests.
On 7 July 2010 the European Commission released two documents: a draft Regulation and a Communication . The draft Regulation, which proposes a transitional arrangement for existing BITs, has to be approved by both the Council and the Parliament, while the Communication on the EU’s future investment policy invites the Council, the Parliament, the Economic and Social Committee and the Committee of the Regions to express their views.
The Communication is essentially a discussion document that does not bind the Commission. More important will be the first draft mandates for EU investment negotiations with Canada, India, Singapore, China and MERCOSUR, which the Commission will propose in the autumn. Formally only the Council, i.e. the Member States, needs to approve these mandates, and there is no indication that they will suddenly change their practice and organise broad consultations to determine their positions. The Lisbon Treaty has given the EU Parliament the competence to approve trade and investment agreements, but not the negotiating mandates. However the Parliament has warned the Council and the Commission that it better be consulted about the mandates if they want to ensure parliamentary approval at the end of negotiations. Unfortunately (draft) negotiating mandates will remain “restricted” documents not open for public examination.
Even before its release on 7 July, the draft regulation has been the subject of intense lobbying and wrangling by the corporate lobby groups and law firms, and by the Member States in tune with the corporate positions. As a result, an important opportunity has been missed to assess the existing BITs with a view to obtain a greater balance between public and private interests.
The Commission dropped its proposal to phase out Member States’ BITs in seven years. Instead, the draft proposes to automatically and without review authorise all Member States’ BITs that have been concluded on the day that the regulation comes into force. However, the Commission has maintained another option to deal with the BITs by proposing that it can withdraw authorisation when existing agreements do not comply with EU law, overlap with the future EU investment agreements or “constitute an obstacle to the development and implementation of the Union’s policies relating to investment”. EU member states are fiercely criticising this proposal in the Trade Policy Committee and will no doubt try to get rid of it.
As mentioned, the “Union’s policies relating to investment” will depend more on the negotiating mandates than on the Communication. The Communication also does not enter into much detail. Interestingly, and in sharp contrast with the one-sidedness of the 1200 existing EU BITs, it does mention broader policy objectives, in that it explicitly refers to the objectives of the overall European foreign policy (like the promotion of the rule of law, human rights and sustainable development) and also to the OECD Guidelines for multinationals. It also says that there needs to be a balance between different interests with regard to expropriation and endorses more transparency, consistency and predictability with regard to the investor-to-state dispute settlement.
But the Communication does not call into question investor-state arbitration per se, nor does it add any nuance to key features of the member states BITs, such as National Treatment, Most Favoured Nation Treatment, Fair and Equitable Treatment, Full Security and Protection and even Umbrella Clauses. So far there is little indication that these elements will appear in the future EU investment agreements in a more balanced way.
However the case is not yet closed. While Member States will continue to hang on to their outdated and unbalanced BITs and BIT models, the Parliament could take up the defence of the EU’s common approach and, more importantly, its consistency and coherence with the Union’s overall policies and objectives. After all, if not corrected, the flaws of the current BIT practice could backfire against European environmental and other public interest policies and cost European taxpayers dearly in compensations to foreign investors.
Author: Marc Maes is a Trade Policy Officer of the Belgian NGO-coalition 11.11.11.