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The brave new world of EU foreign investment policy

Since the Treaty of Lisbon entered into force more than four years ago, the EU has exclusive competence to conclude agreements covering foreign direct investments with third States.  Until then, EU Member States had concluded around 1,400 investment agreements with third States.  Slowly but surely the EU’s foreign investment policy begins to take shape and it is not all good news for foreign investors.

Importantly, however, a regulation of 12 December 2012 clarified the principle that investment agreements by EU Member States with third States remain in force.  Thus, for the time being, investors may continue to rely on them.  The aim of the European Commission is to replace these Member States agreements with EU agreements.  It started negotiations with numerous States such as the United States, Japan, India, Singapore and most recently China.  While many of these negotiations are at an early stage, the negotiations with Canada on a “Comprehensive Economic and Trade Agreement” (“CETA”) are the furthest advanced.  The EU and Canada reached a political agreement on CETA on 18 October 2013.   The final text is not yet clear, but certain features of the agreement, including its investment chapter, became clearer recently.

Two documents published in the last week of November 2013 show that the EU and Canada seek to address certain criticisms that have been raised against investment arbitration recently.  According to the Commission, CETA reaffirms the right of the EU and Canada to regulate to pursue public policy objectives such as the protection of health, safety, or the environment.  CETA also provides a precise definition of “fair and equitable treatment”, arguably the most important investment protection guarantee typically contained in investment agreements.  This definition rejects the broad interpretation of this guarantee which some arbitral tribunals have adopted.  Similarly, CETA contains restrictive language on what constitutes indirect expropriation.  It also aims to incorporate protections against frivolous and unfounded claims, for example by introducing a loser pays principle.

It is not clear yet when CETA will be finalised and when it will enter into force, though it is unlikely to happen in 2014.  Meanwhile, the Commission clarified that it will pursue these policies in other agreements currently negotiated.  Remarkably, to date the EU has not agreed whether these agreements will be concluded by the EU only or also by its Member States.  It is also not clear in what circumstances the EU or a Member State will be respondent in an arbitration.  It is clear, however, that the EU will have to conclude its homework before fully implementing its foreign investment policy.