Competence to conclude international investment agreements - Exclusive to the European Union or vested in Member States?

Table of Contents

I. The Lisbon Treaty - General Introduction
a) Reform of the Union - a long and tricky road
b) Contractual Basis after the ToL
c) Legal Personality of the European Union
d) The new Foreign Direct Investment Competence

II. Investment.
a) Foreign Direct Investment
b) Portfolio Investment
c) Market Access- and Post Market Access Phase
d) Investment Protection Instruments

III. Investment Activities of the Member States
a) Bilateral Investment Agreements
b) Key Common Provisions of BITs

IV. Investment Competences of the EU/EC
a) Foreign Investment Competence in the Treaties and in Case-Law
b) Common Commercial Policy (CCP), Art. 133 EC-T
c) Freedom of Establishment, Art. 47(2) and Art. 48 EC-T
d) Freedom of Capital and Payment
e) Mixed Agreements
f) Investment Provisions in existing Agreements

V. The Reform of the CCP

VI. The Scope of FDI in Art. 207 TFEU
a) Covered Types of Investment
b) Covered Stages of Investment
c) Covered Investment Protection Instruments
d) Protection against Expropriation
e) Dispute Settlement
f) General Limitation by Art. 207 (6) TFEU

VII. Procedures and Voting.
a) Framework-Regulations and Negotiation Procedure
b) Voting Rules

VIII. Consequences and Conclusion

Table of Cases and Opinions

Commission v. Netherlands (Cases C-282/04 and C-283/04 ) [2006] ECR I-09141 Commission v. Germany (Case C-112/05) [2007] ECR 00000

Commission v. Council (Case 22/70) [1971] ECR 263 Kramer (Cases 3,4 & 6/76) [1976] ECR 1279

Opinion 1/76, Inland Waterway Vessels, 26 April 1977 Opinion 1/91, EEA I, 14 December 1991

Opinion 2/92, OECD-National Treatment Instrument, 24 March 1995 Opinion 1/94, WTO, 15 November 1994

Opinion 2/94, ECHR, 28 March 1996

Opinion 2/00, Cartagena Protocol, 6 December 2001

Bibliography

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Niklas Maydell, The European Community’s Competence to Conclude International Agreements on Investment. Disser­ tation at the University of Vienna , 2008.

Paul Craig and Gràinne de Bùrca, EULaw (3rd edition). Oxford University Press, 2003.

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Journals

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Legal Issues of Economic Integration , 2005, pp. 259-290.

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Table of Abbreviations

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I. The Lisbon Treaty - General Introduction

a) Reform of the Union - a long and tricky road

On December 13th, 2007, the heads of state of the 27 Member States finally signed the Treaty of Lisbon¹, the long awaited reform of the European Union (EU). Provided the ratification in all Member States by the end of 2008, the Treaty of Lisbon is likely to come into force in Jan­ uary 2009. The so-called Reform Treaty is the successor of the ill-fated Treaty establishing a Constitution for Europe and contains most of its ancestor’s provisions.

Notwithstanding the numerous divergent views of the Treaty's consequences on the evolution of the EU², the text comprises the necessary reforms for a more coherent and efficient admin­ istration of the enlarged Union. Besides major amendments on the institutions, the abolition of the pillar structure and the added Charta of Fundamental Rights, several competences were conferred from the Member States to the EU. Among others the EU gained external compe­ tences which were so far exercised by the Member States. In this paper, the new investment competences should be subject to a closer consideration.

b) Contractual Basis after the ToL

Unlike the Constitution Treaty, the Treaty of Lisbon does not replace the present contractual basis of the EU with a new Treaty. Instead, the two existing Treaties, the Treaty of the Euro­ pean Union (TEU) and the Treaty of the European Community (EC-T) are modified into the new and enhanced TEU and the Treaty on the Functioning of the European Union (TFEU). The latter determines the procedures and the delimitation and execution of competences like the EC-T did.³

One of the major objectives envisaged by the Reform Treaty was to create a more coherent and unitary external relations and foreign policy system. In this field, the competences have been largely divided between the EU and the Member States, two different decision-making procedures were applied and a lot remained controversial.⁴

In order to enhance clarity, Part Five of the TFEU⁵ contains all relevant provisions concerning EU's external actions (e.g. Common Commercial Policy, Development Cooperation). The wording of Art 207 TFEU⁶ is of particular interest since it includes the term "foreign direct in­ vestment" and might confer investment policy competences from the Member States on the EU.

c) Legal Personality of the European Union

As the new Art. 47 TEU states, the EU enjoys legal personality and replaces and succeeds the European Community (EC).⁷ This ends the ongoing controversy about the legal capacity of the EU. By virtue of Art. 335 TFEU, the European Commission represents the EU unless an­ other institution enjoys specific administrative autonomy in a certain matter.

Hence, the EU enters into all international agreements conducted by the EC and adopts all ex­ ternal rights and obligation, which accrue from these agreements.⁸

d) The new Foreign Direct Investment Competence

Despite the close connection between investment and several other competences, the EU does not enjoy competence over Foreign Direct Investment (FDI) so far and the responsibility is shared between the EC and the Member States. The reformed Art. 207 TFEU brings FDI under the roof of the Common Commercial Policy and henceforth requires majority voting for the negotiation and conclusion of agreements. Furthermore, the Commission obtains an exclu­ sive negotiation mandate. However, the scope of this amendment is not as clear as it seems at first sight and the breakdown of competences remains controversial⁹ because the Treaties do not contain a clear definition of FDI.

According to the common definition of FDI, the new competence does not cover all relevant investment measures currently exercised by the Member States. Inevitably, the question of de­ limitation of competence comes up. In order to assess the impact of the new Art. 207 TFEU, this paper starts with the definition of different types of investment, followed by an overview of the current distribution of powers and the content of traditional investment agreements. Eventually, the scope of the new competences should be clarified by analysing their impact on the most important instruments of investment policy.

II. Investment

Although no universally valid definition of the term "investment" exists, most investment agreements contain an almost uniform definition in one of their introducing articles or in their preamble. Investment usually means every kind of asset, including movable and immovable property, any form of participation in a company, intellectual property rights, business con­ cessions and sometimes even claims under a contract having a financial value.¹⁰ Obviously this is a rather broad definition. Therefore, several subcategories exist.

a) Foreign Direct Investment

As stated above, the TFEU mentions FDI in Art. 207 TFEU without specifying its meaning or its range of application. Actually this is no serious problem since the term is already used in Art. 57 EC-T and has been defined in secondary legislation¹¹, case law¹² and by official sourc­ es, for example the OECD¹³ or the UNCTAD¹⁴. Accordingly, FDI is any "form of participa­ tion in an undertaking through the holding of shares which confers the possibility of effective­ ly participating in its management and control"¹⁵ by a natural or legal person from another country. It is usually characterised by a long-term relationship and means both, inward and outward investment.

[...]

¹ OJ C 306, 17/12/2007 pp. 1 - 229.

² Brendan Donelly, "The Reform Treaty: Small Step or Giant Leap?", p. 1. Available at: http://www.fedtrust.co.uk/uploads/Commentary1_October_07.pdf, 16 April 2008.

³ Walter Obwexer, "Der Vertrag von Lissabon" (The Treaty of Lisbon), ecolex , 2008, p. 285.

⁴ Paul Craig and Gràinne de Bùrca, EULaw (3rd edition). Oxford University Press, 2003, pp. 127-132; Ana E Juncos, "The Lisbon Treaty and the Ongoing Problem of Co-ordination of the EU's External Action", pp. 1-6. Available at: http://www.fedtrust.co.uk/uploads/LisbonCFSP_Juncos.pdf, 10 May 2008.

⁵ Art. 205-222 TFEU.

⁶ Art 207 TFEU was designed to replace Art 133 EC-T and is part of the Common Commercial Policy.

⁷ Art. 1 subparagraph 3 TEU.

⁸ Walter Obwexer, "Der Vertrag von Lissabon" (The Treaty of Lisbon), ecolex, 2008, p. 286.

⁹ Damon Vis-Dunbar, "European treaty may revive debate over power to conclude investment agreements", Invest­ ment Treaty News (IISD), p. 2. Available at: http://www.bilaterals.org/article-print.php3?id_article=10184, 10 May 2008.

¹⁰ Mahnaz Malik, "Report on Bilateral Investment Treaties between European Union Member States and Pacific Coun­ tries", Available at: http://www.thecommonwealth.org/document/159719/159724/report_on_ bilateral_invest- ment

_treaties_between_eu.htm, 30 April 2008.

¹¹ Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty, OJ L 178 08/07/1988 , Annex I.

¹² Joined Cases C-282/04 and C-283/04, Commission v Netherlands , 28 September 2006, para. 19, OJ C 294, 2.12.2006; Case C-112/05, Commission v Germany , 23 October 2007, para. 54, not published in the OJ so far.

¹³ Organisation for Economic Co-Operation and Develeopment, "OECD Benchmark Definition of Foreign Direct In­ vestment", 3rd edition, Available at: http://www.step.no/foton/extranet/litteratur/DefinitionofFDI.pdf, 30 April 2008.

¹⁴ United Nations Conference on Trade an Developement, Available at: http://www.unctad.org, 30 April 2008.

¹⁵ Ibid. fn. 12.