3 European international investment
policy
| (a)
(31783)
11952/10
COM(10) 343
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Commission Communication: Towards a comprehensive European international investment policy
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| (b)
(31784)
11953/10
COM(10) 344
|
Draft Regulation establishing transitional arrangements for bilateral investment agreements between Member States and third countries
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| Legal base | (a) —
(b) Article 207(2)TFEU; co-decision; QMV
|
| Documents originated | 7 July 2010
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| Deposited in Parliament | 12 July 2010
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| Department | Business, Innovation and Skills
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| Basis of consideration | EM of 28 July 2010
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| Previous Committee Report | None
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | (a) Cleared
(b) Not cleared; further information awaited
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Background
3.1 According to the Commission, investment "presents
itself as a new frontier for the common commercial policy",
and it notes that the Lisbon Treaty not only provides for the
EU to contribute to the progressive abolition of restrictions
on foreign direct investment, but also grants it exclusive competence
in this area. It has therefore sought in these two documents (a)
to develop an investment policy which increases EU competitiveness
thereby contributing to the Europe 2020 Strategy, and (b) to put
forward a draft Regulation which would establish transitional
arrangements relating to investment agreements between Member
States and third countries, and so provide legal certainty for
both EU and foreign investors.
The current documents
DOCUMENT (A)
3.2 The Commission says that foreign direct investment (FDI)
is generally considered to include any such investment which seeks
to establish lasting and direct links with the undertaking to
which capital is made available, and covers both shareholdings
where the investor participates in the management of the company
concerned and those — commonly referred to a "portfolio
investments" — which are often of a more short-term
(and sometimes speculative) nature, and where there is no such
intention. It notes that globalisation has seen a dramatic increase
in capital movements, particularly of FDI, which have been an
important source of productivity gains, with about half of world
trade now taking place between affiliates of multinational enterprises:
and it suggests that, whilst the relationship between FDI and
economic growth and welfare is complex, and can have sector-specific
or geographical negative effects, both inward and outward investment
on balance have a positive impact inside and outside the EU, including
in developing countries (as both investors and as recipients of
investment).
3.3 The Commission goes on to note that, although
investment decisions are driven primarily by market considerations,
they are also deeply affected by the economic, political and legal
environment. It adds that a common international investment policy
serves the fundamental purpose of assuring investors that they
can operate in an open and fairly regulated business environment,
both within and across the host country's borders, and it says
that the EU should continue to be an open investment environment,
whilst at the same time ensuring that its investors enjoy a level
playing field abroad. It therefore suggests that a more activist
approach, ensuring that EU investment relations with third partners
constitute a "two-way street", is warranted.
3.4 The Commission suggests that a number of
important building blocks provide the basis for a common international
investment policy. These include Bilateral Investment Treaties
(BITs), where it observes that over the last 50 years Member States
have concluded numerous such Treaties, with a total of 1200 agreements
covering all forms of investment (and accounting today for almost
half of the agreements currently in force globally). It adds that
Member States have by this means sought (and obtained) from third
countries specific guarantees on the treatment of their investors
and investments in such areas as unfair or discriminatory treatment
or prompt compensation in the case of expropriation, but it also
points out that not all Member States have concluded such agreements,
and that not all agreements provide for the same high standards,
leading to an uneven playing field for EU companies investing
abroad.
3.5 The Commission says that a comprehensive
common international investment policy is needed to address investor
needs, and that supporting the competitiveness of European enterprises
will best be served by cooperation and negotiations at an EU level,
with guarantees being sought from third countries in the form
of binding commitments under international law. It adds that this
can be achieved by building upon the BITs which currently exist,
the long-term aim being to achieve a situation where investors
need not rely on BITs entered into by a Member State for their
investments to be effectively protected.
3.6 The Commission then sets out an agenda for
EU investment negotiations, based on the premise that the aim
should be to deliver better results than could be achieved by
Member States individually. At the same time, however, it recognises
that a one-size-fits-all model would be neither feasible nor desirable,
and that it will be necessary to take into account the specific
negotiating context (including the nature of existing agreements
made by Member States). It then suggests a number of broad principles
and parameters for future agreements.
Criteria for selecting partner countries
3.7 The Commission notes that FDI is currently
concentrated heavily among developed countries, reflecting their
economic importance and generally favourable conditions for foreign
investors, but it also highlights the particular opportunities
presented by markets with significant growth prospects and the
importance of EU investors having access to them and thus benefiting
from guarantees of fair and predictable treatment. At the same
time, it stresses the importance of the political, institutional
and economic climate in partner countries and of their having
"robust" investor protection. It says that, in the short
term, integration can be achieved through ongoing trade negotiations,
where the EU is seeking to broaden the scope to include investment
as well as trade, and it identifies negotiations with Canada,
India, Singapore and the Mercosur countries[7]
as areas where this could be achieved. As regards the short to
medium term, it says that the EU should also consider the possibility
of stand-alone investment agreements, with potential candidates
being China and Russia; and it adds that sectoral agreements might
be desirable where it does not prove possible to negotiate a comprehensive
agreement across the board.
Looking beyond foreign investment
3.8 The Commission says it is important that
a common international investment policy not only enables direct
investment itself, but also protects accompanying operations,
such as the repatriation of profits and the protection of intangible
assets, such as intellectual property rights. In particular, it
suggests that investment policy should be consistent with the
Treaty's provisions on capital and payments, which prohibits restrictions
between Member States (and between them and third countries):
and it points out that, although the relevant Chapter of the Treaty
does not expressly cover international agreements on investment,
exclusive EU competence to conclude agreements in this area is
implied to the extent that any such agreements would affect common
rules on capital and payments.
Setting standards of investment protection
3.9 The Commission notes that the EU currently
relies in international negotiations on the principle of non-discrimination
implemented through two basic standards ("most- favoured
nation-treatment" and "national treatment"), but
that BITs employ standards such as "fair and equitable treatment"
and "full security and protection treatment", or provide
for the protection of contractual rights granted by a host government
to an investor. It also points out that clauses which place certain
conditions upon the exercise of the host country's right to expropriate
are an important cornerstone of Member State best practices, and
that such measures should be non-discriminatory and proportionate,
with provision for adequate compensation. It adds that the EU
should include precise clauses covering this in its own future
investment agreements, as well as ensuring the free transfer of
capital and payments by investors. Finally, it observes that trade
and investment policy must be consistent with other EU policies,
including those on the environment, health and safety at work,
consumer protection, development and competition, and also be
guided by the rule of law, human rights and sustainable development.
Enforcing investment commitments
3.10 The Commission says that effective enforcement
is a key EU objective, and that it has included in all of its
recent Free Trade Agreements (FTAs) a state-to-state dispute settlement
system, which will in future cover any investment provisions.
It adds that such agreements also need in future to include provision
for investor-to-state dispute settlement of the kind found in
Member States' BITs, but it points out that current structures
are to some extent ill suited to the advent of the EU, which is
(for example) not eligible to sign the Convention on the Settlement
of Investment Disputes between States and Nationals of Other States.
It says that the EU should build on Member State practices in
this area to arrive at state of the art dispute mechanisms, with
particular emphasis on transparency, consistency and predictability
of decisions through the use of semi-permanent arbitrators, and
rules for the conduct of arbitration.
International responsibility
3.11 The Commission stresses the need to address
the relative responsibilities of the EU and Member States, and
says that it will defend all the actions of the EU institutions,
with the EU also being the sole defendant regarding any measure
taken by a Member State which affects investments by third country
nationals of companies falling within the scope of the agreement
concerned.
DOCUMENT (B)
3.12 Notwithstanding the assumption by the EU
of exclusive competence in this area, the Commission notes that
the many agreements entered into by Member States remain binding
upon them under international law, and that, although these will
progressively be replaced by future EU agreements, it is necessary
in the meantime to manage their continued existence, taking into
account EU competence. It says that, since there is no explicit
transitional regime in the TFEU addressing this need, it has put
forward this draft Regulation enabling Member States to maintain
in force for the time being bilateral agreements which have been
notified to it, provided these do not conflict with EU law (other
than the incompatibilities arising from the allocation of competences
between the EU and Member States); overlap, in part or in full,
with an EU agreement in force (or under negotiation) with the
country concerned, where the specific overlap is not addressed
in that agreement; or constitute an obstacle to the development
and implementation of EU policies relating to investment. The
proposed Regulation would also enable the Commission to review
such an authorisation and to withdraw it if these conditions are
not met, and to authorise a Member State to amend an existing
agreement or conclude a new one: and it would require Member States
to involve the Commission in any disputes arising from investment
agreements to which they are a party.
The Government's view
3.13 In his Explanatory Memorandum of 28 July
2010, the Minister for Employment Relations, Consumer and Postal
Affairs at the Department for Business, Innovation and Skills
(Mr Edward Davey) says that, although the Communication is a non-binding
document, it does have implications for UK policy insofar as it
details the Commission's intentions in this area of policy, which
now forms an area of exclusive EU competence following the entry
into force of the Lisbon Treaty. He adds that the Government strongly
supports the Communication's primary aim of providing legal certainty
to investors, and is broadly supportive of the manner in which
it is suggested that EU competence would be used in this policy
area to achieve this in new investment agreements or investment
chapters in FTAs. He also believes that, given the different levels
of economic development and business environments of prospective
negotiating partners, it is prudent for negotiations to be dealt
with on a country by country basis, and he notes that the content
of EU investment agreements proposed in the Communication broadly
follows the same principles and guarantees as past UK investment
agreements. However, he suggests that, without a model agreement,
the EU will place itself at a disadvantage in negotiations.
3.14 As regards the proposed Regulation, the
Minister comments that this aims to provide legal certainty to
investors by means of an authorisation procedure designed to allow
Member States to maintain investment agreements, but also says
that, in its present form, the proposal would give the Commission
broad scope to remove authorisation for existing investment agreements,
and that this would be a threat to the legal security these existing
agreements provide investors from the UK and other Member States.
He says that the UK — and the vast majority of other Member
States — considers that the only situation where authorisation
should be withdrawn is where a new EU investment agreement, following
a comprehensive review, is shown to provide at least the same
level of protection for investors as the Member State agreement
it is replacing.
Conclusion
3.15 Since the EU now has exclusive competence
in relation to foreign investment, it seems sensible for the Commission
to produce a Communication setting out its views on how this should
be exercised, and we note that the Government is broadly content
with the general thrust of document (a), which we are therefore
content to clear.
3.16 Likewise, there is obviously a need to
clarify the relationship between any agreements entered into by
the EU in this area and those made by Member States, in order
to provide legal certainty for investors, and we have noted the
provisions of document (b). In the main, these appear to be unexceptionable,
subject to the Government's reservations over the scope which
the Commission would have to require Member States to terminate
existing agreements. Consequently, although we have no major issues
to raise on the draft Regulation, we propose to hold it under
scrutiny, pending further information on this last point.
7 Argentina, Brazil, Paraguay and Uruguay. Back
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