Brussels, 12 December 2012
Q&A: EU gives greater clarity to EU investment rules
The European Parliament and Council adopted a regulation on bilateral investment agreements on 12 December. Investment policy has become an exclusive EU competence under the Lisbon Treaty. To allow a smooth transition towards a system of EU-wide investment protection agreements, the regulation clarifies the status of bilateral investment agreements concluded between EU Member States and third countries.
What is the Regulation about?
The Regulation provides the legal certainty for European and foreign investors benefiting from investment protection offered in Member States' bilateral investment agreements concluded with other parts of the world previous to the Lisbon Treaty which entered into force in December 2009. It clarifies the legal status of those agreements under EU laws and confirms that they may be maintained in force until they are replaced by an EU investment agreement.
At the same time, the Regulation also establishes a mechanism for empowering Member States – under certain conditions – to negotiate and conclude bilateral investment agreements with countries not immediately scheduled for the EU-wide investment negotiations. This is designed to expand the scope of investment protection currently available to European investors.
All appropriate safeguards are in place to ensure that investment agreements of Member States will not create any serious obstacles to the smooth implementation of the EU investment policy.
What is a bilateral investment agreement?
A Bilateral Investment Agreement or Treaty is an agreement establishing the terms and conditions for investment by nationals and companies of one country in another country. It establishes a legally binding level of protection in order to encourage investment flows between the two countries. It grants investors a number of guarantees, which typically include fair and equitable and non-discriminatory treatment, protection from unlawful expropriation, free transfer of funds and full protection and security. On top of this, the majority of bilateral investment treaties also offer investors direct recourse to international arbitration against the country concerned when their rights under the treaty have been violated.
There are more than 1200 bilateral investment treaties concluded by EU Member States and other countries. These are therefore a key issue addressed by the regulation.
My investment abroad is protected by a bilateral investment agreement. What will happen to that agreement now?
Nothing. The 1200 plus Bilateral Investment Agreements concluded by Member States remain valid under international law. As their existence may raise a question of compatibility with EU law, the regulation makes it fully clear that the benefits and rights available under those agreements cannot be denied even with the development of a comprehensive EU-level policy role on investment.
The EU has chosen a "zero-risk" approach to reassure investors that their rights are not affected. This is intended to build confidence and pave the way for the EU to exercise its new EU role on investment.
Why does the EU common investment policy allow Member States to negotiate investment agreements with foreign countries on a bilateral basis, if the EU can negotiate at the European level?
The Regulation provides for a transitional mechanism that empowers Member States to enter into bilateral negotiations with non-EU countries. This is mainly due to the fact that existing bilateral investment agreements 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. An authorisation to start such negotiations and conclude new agreements will be conditional and the process closely monitored by the Commission, with a view to ensuring the overall compatibility with the EU common investment policy.
What are the conditions for Member States to negotiate investment agreements?
An investment negotiation by a Member State with a relevant third country, and a corresponding agreement with this country, may only be authorised by the Commission if the agreement:
is consistent with EU law;
is not superfluous, because the Commission submitted or decided to submit a recommendation to open negotiations with the same country;
is consistent with the Union's principles and objectives for external action; or
does not constitute a serious obstacle to the negotiation or conclusion of investment agreements by the EU.
What are the safeguards in place if Member States go ahead with their own national investment negotiations?
The Regulation ensures that the maintenance of investment agreements in force by Member States, or the authorisation to open negotiations and conclude bilateral investment agreements with third countries will not prevent the negotiation or conclusion of future investment agreements by the Union. In case Member States' agreements create obstacles to the negotiation and conclusion of EU agreements, the Regulation establishes a mechanism of consultation and cooperation between the Commission and the Member State concerned in order to resolve the problem.
With whom will the EU negotiate investment protection agreements in the future?
The EU will prioritise its future investment negotiations on the basis of investor needs. Important determinants for defining priority countries for investment protection negotiations include:
the magnitude of investment flows to and from prospective negotiating partner
the market potential for future investments,
as well as the stability and predictability of the investment climate as guaranteed by political and institutional setting in that country.
The EU will also be receptive in case our trading partners wish to engage in investment protection negotiations.
What is the status of the EU investment negotiations?
The EU is in the process of developing and implementing its own comprehensive investment policy. We are currently advancing first negotiations on investment protection with Singapore, Canada and India in the context of wider trade negotiations with these countries. With Canada and Singapore we are close to finalisation.
In December 2011 the Council decided to authorise the Commission to negotiate deep and comprehensive free trade agreements with four Southern Mediterranean countries (Morocco, Tunisia, Jordan, Egypt), and to include in these negotiations provisions on investment protection. Finally, in November 2012 the Council authorised the Commission to engage in trade and investment negotiations with Japan. Moreover, the Commission is also exploring negotiating opportunities with other important investment partners, such as China.
EU investment policy: