WIREDGOV

The European Commission recently took an important step to protect foreign investors at the EU level, thereby ensuring that Europe continues to be a safe and attractive place for investment by foreign companies. The recent proposal establishes a legal and financial framework for "investor to state dispute settlement" as part of a broad investment policy which has become an exclusive EU competence under the Lisbon Treaty. It is a further step in the creation of a comprehensive EU investment policy which will allow the EU to negotiate investment protection agreements at the European level. The recent decision will ensure the EU has the right system in place so that international investment rules can be managed effectively in cases disputes arise between foreign investors and the EU and its Member States.

A key element of investment protection is the possibility of dispute settlement between an investor and a state, a provision currently included in the more than 1,000 bilateral investment protection agreements concluded between EU Member States and countries outside the EU. Once investment agreements will be concluded at the EU level, foreign businesses investing in the EU may, for the first time, bring claims against the EU alleging that investment protection obligations have been breached. Today's proposal clarifies who would bear the financial responsibility when compensation has to be paid – Member States or the EU. It ensures that foreign investors in the EU are not affected by this allocation of responsibility.

“Investment is a driver of growth so it’s essential that we have the right rules in place. Just as we expect EU investors to be duly compensated when the rules are broken, we have to make sure we have a system at the EU-level to follow suit. Today’s proposal makes it clear who pays. This is one step in an overall strategy to ensure Europe remains an attractive investment environment”, said Karel De Gucht, EU Trade Commissioner.

The EU is the world's leading host of foreign direct investment, attracting investments worth €225 billion from the rest of the world in 2011 alone. The proposed regulation will provide legal certainty and predictability for foreign investors, which will help keeping the EU open for investment and create jobs.

The Regulation proposes a mechanism whereby financial responsibility for the costs of investor-to-state dispute settlement and the right to defend such a case are allocated between the EU and the Member States on the basis of whose actions caused the investor to bring a claim:

• Where the measure which is alleged to be in breach of the agreement is a Member State measure, which was not required by EU law, the Member State would bear the financial responsibility flowing from the dispute and may in principle also act to defend the claim.

• Conversely, if the measure at issue is an EU measure or a Member State measure mandated by EU law, the EU would bear the financial responsibility and could act as defendant.

The regulation permits the Member States to defend their own measures where they would ultimately have to bear the costs, unless it is in the interest of the Union to act as defendant, on the basis of the conditions set down in the proposal.

In all cases, there should be very close cooperation between the EU and Member States in order to ensure the best possible defence of any claims alleging a breach of the investment protection agreements negotiated by the EU.

Background

The Treaty of Lisbon included investment as part of the EU Common Commercial Policy, an exclusive competence of the EU. As a consequence, the European Commission can now negotiate on behalf of the European Union on both the liberalisation and protection of investments.

The recent proposal on investor to state dispute settlement is the third key part of this policy, which is based on:

• Negotiating new rules on investment with key trading partners

The EU is gradually negotiating on investment with key trading partners. Provisions on investment liberalisation and protection will be included in comprehensive Free Trade Agreements, or in self standing investment agreements.

The European Commission is currently negotiating on investment, including investment protection, as part of the Free Trade Agreement talks with Canada, India and Singapore, while the Council has recently adopted the negotiating directives also for four Euromed countries (Tunisia, Morocco, Jordan, and Egypt). The Commission is also preparing for an EU-China investment agreement.

When concluded, the EU level agreements including investment protection will replace the Member States' Bilateral investment Treaties with the same third countries.

• Ensuring the smooth continuity of existing bilateral investment treaties

More than 1000 bilateral Investment Treaties existing worldwide are in place between EU Member States and third countries.

To ensure legal certainty on these existing Bilateral Investment Treaties of the EU Member States the European Commission has presented a proposal for a Regulation of the Council and the European Parliament in July 2010 (IP/10/907). The Council and the Parliament have recently found a political agreement on the Commission's proposal, and the regulation is expected to be adopted and enter in force before the end of the year.

What happens next?

The proposal will now be discussed by the Council of Ministers and by the European Parliament under the ordinary legislative procedure.

The regulation should be in place before the new Free trade Agreements that contain new EU-level investment protection provisions comes into force.

For more information

EU investment policy

http://ec.europa.eu/trade/creating-opportunities/trade-topics/investment/

EU27 foreign direct investment statistics, Eurostat, 13 June 2012

http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-13062012-BP/EN/2-13062012-BP-EN.PDF

Contacts :

John Clancy (+32 2 295 37 73)

Helene Banner (+32 2 295 24 07)