On 7 July 2010, the European Commission published a proposal for a Regulation establishing transitional arrangements for bilateral investment agreements between Member States and third countries (COM (2010) 343 final, hereinafter: the Regulation Proposal; available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52010PC0344:EN:NOT). By adopting this Regulation Proposal, the Commission reacts to the changes by the Treaty of Lisbon concerning the division of competences in the field of investment law: According to Article 207 of the Treaty on the Functioning of the European Union (TFEU), the Common Commercial Policy (CCP) now expressly extends to foreign direct investments. Since the competences in the field of the CCP are exclusive, EU Member States are generally no longer allowed to conclude new agreements concerning foreign direct investment (see Article 2 para. 1 TFEU). Furthermore, the Member States are obliged to denounce agreements, for which they have lost their competence (compare Article 351 s. 2 TFEU; see Joined Cases 3, 4 and 6/76, Cornelis Kramer and others, 1976 E.C.R. 1279, ¶ 45; concerning investment agreements compare 205/06, Commission of the European Communities v Republic of Austria, 2009 E.C.R. I-1301 (Mar. 3, 2009); Case C-249/06, Commission of the European Communities v Kingdom of Sweden, 2009 E.C.R. I-1335).
However, it would not be desirable if the Member States would have to denounce all their BITs as a consequence of the EU having acquired exclusive competences for FDI. The EU Member States have concluded an impressive number of bilateral and also multilateral investment treaties: The numbers of BITs concluded by all EU Member States range between 1000 to 1300. With a total number of 130 BITs ratified (compare http://www.bmwi.de/BMWi/Navigation/aussenwirtschaft,did=194058.html), Germany can be considered the “BIT world champion”. Besides, all EU Member States are contracting parties to the ICSID-Convention, which offers a mechanism for the settlement of investment disputes between States and investors.
In case the EU Member States would have to denounce all their BITs, EU investors would be left unprotected until the EU concludes BITs on its own. Therefore, like in similar cases before (compare, e.g., Regulations (EC) No. 662 and 664/2009), the European Commission seeks to establish a transitional procedure by the Regulation Proposal, which allows the Member States to maintain their existing BITs concluded with third countries and even to conclude new BITs. However, this Regulation Proposal must be criticized mainly for two reasons. First, the Commission incorrectly assumes that the EU has exclusive competences for all issues covered by the Member States’ BITs. Therefore, questions of “mixity” are neither discussed by the Regulation Proposal, nor by the Communication concerning a future European International Investment Policy (COM (2010) 343 final, available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52010DC0343:EN:NOT), which has been published on the same day as the Regulation Proposal. Second, the Proposed Regulation is poorly and incoherently drafted.
Concerning competences, most authors come to the conclusion – and rightly so – that Article 207 TFEU does not cover all issues addressed by current BITs (see, e.g., Markus Krajewski, External Trade Law and the Constitution Treaty, 42 Common Market Law Review 91, 112 (2005); Lorenza Mola, Which role for the EU in the development of international investment law? 15 (Society of International Economic Law Inaugural Conference, 2008), available at http://ssrn.com/abstract=1154583; Joachim Karl, The Competence for Foreign Direct Investment, 5 Journal of World Investment & Trade 413, 425 (2005); Jan Ceyssens, Towards a Common Foreign Investment Policy?, 32 Legal Issues of Economic Integration 259, 274-75 (2005)). For example, Article 207 TFEU is limited to direct investments, which require “lasting and direct links between the persons providing the capital and the undertakings to which that capital is made available in order to carry out an economic activity“ (see Case C-446/04, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, 2006 E.C.R. I-11573 at ¶ 181). However, current BITs generally use a broader definition of investment, which refers to all kinds of assets. In addition, it is arguable that the competences under Article 207 TFEU are limited to question of the admission of investments and do not govern the protection of admitted investments. Nevertheless, „[the]Commission is of the view that any legal uncertainty on the status and validity of these agreements, which could be detrimental for the activities of EU investments and investors abroad or foreign investments and investors in Member States, is to be avoided.“ (Regulation Proposal, at 3). It is certainly true that the investors’ major concern is not who will conclude future BITs, but whether the protection granted by existing BITs will remain in force (until replaced by an adequate standard of protection). Nevertheless, the EU cannot dispose over its own competences merely by adopting a regulation. Thus, the Draft Regulation is not a suitable instrument to create legal certainty regarding the extent of the competences of the EU or the Member States. Rather, such an attempt would contravene against the principle of conferral.
But apart from questions of competence, the Proposed Regulation may be subject to criticism. First, the legal certainty aimed at by this Regulation Proposal will be limited or may even be deceptive. Existing BITs will be – after a notification by the Member States –automatically authorized and then be published in the Official Journal (Articles 3 and 4 Regulation Proposal). The Commission may withdraw such an authorization, inter alia, in case of a substantive conflict with the law of the Union (Article 6 para. 1 Regulation Proposal). But there is neither a binding decision by the Commission that there is no substantive conflict between the agreement and EU law, nor are there time limits for a review by the Commission. Thus, the publication of the agreement in the Official Journal as well as the fact, that the authorization has (not yet) been withdrawn, does not mean that he Commission will not do so in the future. Or worse, it can review the agreement immediately and come to the conclusion that there is no substantive incompatibility; but some years later it can change its mind and withdraw the authorization. Second, neither the grounds for a withdrawal of an authorization and the grounds for a non-authorization correspond, nor do so the grounds for withdrawing the authorization and the aspects to be assessed during the review according to Article 5. Third, Article 6 para. 1 lit. c provides a rather far reaching and indeterminate reason for withdrawal. According to this provision, the authorization can be revoked in case an agreement constitutes an obstacle to the development and the implementation of the Union’s policies relating to investment. Neither the proposal nor the explanatory memorandum explain how the “Union’s policies relating to investment” can be determined. Thus, if adopted tel quel this ground for withdrawal could constitute a carte blanche for the Commission. Fourth, the Draft Regulation sets a strict time limit for a notification by a Member State of its intention to negotiate an agreement, which does not correspond to the time limits for a review by the Commission (Article 8 ).
Despite this criticism, a transitional regime for existing BITs is urgently needed to avoid the severe consequences foreseen by Article 351 TFEU, regardless of whether the EU enjoys exclusive competences for all or only some subjects covered by current BITs (i.e. if the competence is mixed). Conversely, questions of “mixity” will arise as far as future agreements are concerned unless the Commission is willing to exclude non-direct investments from future EU BITs and to leave them unprotected. Although in theory the Member States retain the competence to conclude their own BITs limited to non-direct investments, this will hardly be a workable solution in practice.
Mixed agreements are quite a common phenomenon today. Still, their conclusion entails intricate problems resulting from the interplay of public international law and EU law. In the case of investment agreements, two issues are of particular interest: international responsibility and dispute settlement.
In general, international organizations are only liable for the conduct of their own organs. However, EU law is normally not implemented by the organs of the EU itself, but by the Member States, which enjoy a certain discretion in implementing EU legislation. According to Article 16 of the Draft Articles on the Responsibility of International Organizations, an international organization may be responsible if it orders a state to commit an act contrary to its international obligations. However, if a Member State breaches an obligation under the BIT while implementing EU legislation without having been ordered to do so, Article 16 of the Draft Articles provides no answer. Whether the Member State itself is liable depends on the actual design of the BIT: Most modern mixed agreements delimitate the scope of rights and obligations of the EU and Member States according to the internal allocation of competences (compare, e.g., Article. 5, 6 para. 1 UNCLOS Annex IX). If such a clause is missing, the EU and its Member States are jointly liable for a breach (compare Opinion by Advocate General Jacobs, delivered on Nov. 10, 1994, Case C-316/91, Parliament/Council, 1994 E.C.R. I-625, ¶ 69). Assuming that a future EU BIT contains such a delimitation clause, neither the EU nor the Member State could be held responsible in the just mentioned case. To avoid such strange consequences, it thus will be necessary to treat the EU like a federal state and to attribute the conduct of the Member States to the EU itself (compare Article 4 para. 1 of the Draft Articles on Responsibility of States for Internationally Wrongful Acts).
As far as dispute settlement is concerned, a direct participation of the EU as a party to the dispute in an ICSID-arbitration is not feasible because the EU is not a contracting party to the ICSID-Convention. Therefore, an investor seeking redress from the EU will have to chose the rules of another arbitral institution, although this has some disadvantages compared to ICSID. Conversely, EU investors could still choose arbitration under the ICSID-Rules as long as the EU Member States remain contracting parties to ICSID. Thus, there is a serious imbalance between the rights of EU investors and investors of third countries. It seems doubtful whether, in a future EU-BIT, third countries are willing to submit to ICSID-arbitration under these circumstances. However, the ICSID-Convention would have to be amended in order to allow a direct participation of the EU because the participation of regional organizations for economic integration is not possible so far. But the revision of a multilateral treaty is always a delicate thing.
It becomes apparent that the extension of the CCP by the Lisbon Treaty has enormous consequences for existing and future investment agreements, which the drafters did not intend. The focus of the Commission in its Regulation Proposal and the Communication on exclusive EU competences for BITs tends to obscure the intricate questions of “mixity”, which inevitably will come up in the future. The Communication would have been a proper place to create a consciousness for these problems, to shape the discussion and to propose legal solutions. Although a uniform EU foreign investment regime can be a step towards more coherency in international investment law, mixed BITs will cause complications, which can undermine the whole process. If these complications prove to be insurmountable, a revision of Article 207 TFEU should be considered. Considering the frequent amendments of Article 207’s predecessors, such a revision is not unrealistic.
Jan Asmus Bischoff
Dr. Jan Asmus Bischoff studied law at Hamburg University from 2000 to 2005. After his graduation, he worked as a researcher at the Max Planck Institute for Comparative and International Private Law until 2010. In 2008, he completed his Master Degree in International Legal Studies at NYU, School of Law as a Hauser Global Scholar. In 2009, he completed his doctoral thesis on “The European Community and the Uniform Private Law Conventions” under the supervision of Prof. Dr. Dr. hc. Jürgen Basedow. In 2010, he passed the Second State Examination at the Hanseatic Regional Appelate Court, Hamburg. He is currently working as an attorney (Rechtsanwalt) at Luther Rechtsanwaltsgesellschaft, Hamburg in the field of investment law.