Documents considered by the Committee on 15 September 2010 - European Scrutiny Committee Contents

3   European international investment policy




COM(10) 343

Commission Communication: Towards a comprehensive European international investment policy



COM(10) 344

Draft Regulation establishing transitional arrangements for bilateral investment agreements between Member States and third countries

Legal base(a) —

(b) Article 207(2)TFEU; co-decision; QMV

Documents originated7 July 2010
Deposited in Parliament12 July 2010
DepartmentBusiness, Innovation and Skills
Basis of considerationEM of 28 July 2010
Previous Committee ReportNone
To be discussed in CouncilNo date set
Committee's assessmentPolitically important
Committee's decision(a) Cleared

(b) Not cleared; further information awaited


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


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.


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.


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.

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