An update on the publication of a draft EU regulation governing bilateral investment treaties.
The Lisbon Treaty conferred on the EU exclusive competence in relation to foreign direct investment. As we have previously reported, the effect of the Lisbon Treaty on bilateral investment treaties (BITs) concluded by EU member states has given rise to a good deal of debate and uncertainty (see Legal update, Investment treaty arbitration: anticipated developments in 2010). EU member states are currently party to around 1,200 BITs.
The European Commission has now acted to address that uncertainty by publishing a proposed draft Regulation (COM(2010)344 final) and an accompanying Commission Communication (COM(2010)343 final).
The draft Regulation lays down conditions under which member states may be authorised to maintain or enter investment agreements with third countries. Such agreements must be notified to the Commission, which will review them to determine whether they are compatible with EU law and policy. Member states must take any necessary measures to eliminate incompatibility with EU law, and the Commission may withdraw authorisation if an agreement conflicts with EU law, or if the EU has concluded an agreement with a third country containing investment provisions similar to those of a member state BIT, or if the BIT undermines EU investment policies.
The draft Regulation also includes a framework for the negotiation of new BITs with third countries, or modifications or amendments to existing BITs. However, given the EU's exclusive competence in foreign direct investment, the procedure for continued negotiations "must be regarded as an exceptional transitional measure".
The draft Regulation includes some interesting provisions relating to investor-state dispute resolution. Article 13 requires a member state to inform the Commission of any request for dispute settlement under the BIT, and entitles the Commission to participate in the dispute resolution procedure. Member states must also seek the agreement of the Commission before activating any dispute settlement mechanism. The accompanying Commission Communication notes the importance of effective investor-state dispute resolution mechanisms and observes that the EU is currently unable to invoke ICSID arbitration, as the ICSID Convention is open to ratification only by states members of the World Bank or party to the Statute of the International Court of Justice. The Communication concludes that the EU should aim to achieve "state of the art dispute settlement mechanisms". It notes that key challenges include transparency (including provision for open hearings, amicus briefs and publication of awards), ensuring consistency (for example, by use of quasi-permanent arbitrators or appellate mechanisms) and establishing suitable rules for the conduct of arbitration. The Commission intends to explore the possibility of the EU acceding to the ICSID Convention, a process that would require amendment of the Convention itself.
We will continue to report on future developments.