Thursday, July 5, 2012

Coordinating EU Foreign Investment Policy

As part of its effort to make European Union institutions more effective in their areas of competence, the Lisbon Treaty (prior posts) gave the EU exclusive authority over foreign direct investment. The change, which took effect in 2009, has raised many questions and much consternation about the fate of EU member states’ 1200 bilateral investment treaties. In the years since, the EU has elaborated European investment policy and proposed regulations for managing the transition to centralized authority for investment agreements.
To date, the EU has entered into one investment treaty containing a dispute resolution mechanism, and it is negotiating others, which will enable foreign investors to bring claims against the EU for the actions of member states. Additionally, the EU’s exclusive competence in investment matters means that it now bears international responsibility for member states’ violations of even those treaties to which the Union is not a party. Those developments raise two important questions:
► In arbitrations challenging member states’ actions, who should be the named respondent, the EU or the member state?
 When a member state is held liable for violating an investment treaty, should the EU or the member state pay?
The European Commission recently released a proposed regulation addressing those and other issues.
 While affirming that the EU should in principle act as the respondent in any such arbitration, the Commission proposes a “pragmatic solution” to “allow for the smooth conduct of arbitration.” The regulation would permit member states to appear as respondents to defend their own actions, except in certain circumstances where EU actions or interests are particularly at stake.
Similarly, the regulation’s principle for the payment of awards is that responsibility should follow from the origin of the challenged treatment. If the actions giving rise to a successful claim are exclusively those of a member state, the state must pay the arbitral award. If the challenged actions originate in EU institutions or were required by EU law, the EU must pay.
The regulation answers some questions about the future of Europe’s investment treaties, but many unresolved issues remain. For example, the EU is not a party to the Convention of the International Centre for Settlement of Investment Disputes. As a regional economic organization, the EU cannot become a party unless the ICSID Convention is amended—no small task for a treaty with 158 signatories.

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