POMFR: The developing regulatory framework of Foreign Direct Investment in the EU
By Govert Coppens
Philip Strik, Shaping the Single European Market in the Field of Foreign Direct Investment, Hart Publishing 2014, 318 pages, ISBN 978-1-84946-5-427.
The place of foreign direct investment (‘FDI’) within the European Union’s legal framework is a topical issue among scholars and practitioners of European law and of international dispute settlement. This monograph explores the issues arising within the internal market and those that have come up in the European Union’s and the Member States’ individual external economic relations. It looks at the various aspects of FDI regulation, analysing the admission, treatment and protection of direct investments in the EU.
As an introduction the book usefully sets the scene by highlighting the important recent changes to EU law brought about by the TFEU that have pulled ‘foreign direct investment’ firmly into the Union’s Common Commercial Policy (‘CCP’). The author points out that the acquis has addressed investment liberalization and market access without too many conflicts of laws, but that the regulation of investment protection is more complicated. Indeed, many Member States have been adopting bilateral investment treaties (‘BITs’) since the 1960s with third countries and with other Member States and their interaction with EU law is not quite as settled. Furthermore, the introduction goes into the definition of ‘foreign direct investment’. Various instruments include a definition in which control over the enterprise invested in is most often the discriminating feature, setting foreign direct investment apart from a mere ‘portfolio investment’, in which the investor does not exercise any direct influence on the management of the company in which the investment has been made.
The author neatly addresses mentioned issues in four chapters: the operation of the international market mechanism in relation to direct investment (chapter 2), the Lisbon reform of the Common Commercial Policy: implications for the Union competence and practice in the field of FDI (chapter 3), the interplay between EU law and Member State bilateral investment agreements with third countries (chapter 4), and the interplay between EU law and intra-EU bilateral investment agreements (chapter 5).
Chapter two sets out the internal market mechanism through the prism of two of the freedoms enshrined in EU primary law, the freedom of establishment and the freedom of movement of capital. These freedoms are well known, but the author focuses specifically on the problems arising from these freedoms’ overlap in regulating foreign investment and the inward-looking character of the internal market’s regulation of establishment. As a result, the author highlights the distinction that must be made between the post-establishment treatment of investments of third-country investors in a Member State, on the one hand, and such investors’ rights of intra-EU mobility. In any event, the EU’s new competence under the TFEU will shape the external legal framework in a more comprehensive way.
The third chapter picks up on the TFEU’s reform of the Common Commercial Policy and analyses its implications for the EU’s competence and practice relating to FDI. It should be noted that while the new provisions with regard to investment liberalisation are an extension of existing practice pre-Lisbon, the EU is venturing into uncharted waters with its new exclusive competence in the field of investment protection. However, the European Commission has been actively introducing regulation in this field ever since 2010, when it published its communication ‘Towards a Comprehensive European International Investment Policy’ and proposed a draft regulation for the ‘grandfathering’ of existing Member States’ BITs. Nonetheless, there are still multiple questions unanswered. The author points these out, such as the questionable reasoning of the Commission in assuming that Article 207 TFEU covering ‘foreign direct investment’ also includes indirect/portfolio investment. Another thorny area is that of the dispute settlement procedures included in nearly all BITs, which allows for a private party to bring a claim directly against a State before an arbitration tribunal. In addition to several procedural issues, it raises the question how the Union will deal with certain treatment that is consequently granted to investors of third countries that may not similarly be available to nationals of other Member States. The author aptly highlights that the interaction between the freedom of establishment, the internal market mechanisms and investors’ rights under public international law has proven not to be self-evident. This will in part be elaborated in chapter four.
In the fourth chapter, the interplay between EU law and BITs between Member States and third countries is examined. Starting from an historical introduction of Member States’ practice of concluding BITs, the chapter delves into the legal framework that governs most aspects of the interaction – and conflict – between EU law and BITs, with specific attention to the ‘grandfathering’ or ‘sunset’ Regulation (EU) 1219/2012, which governs how Member States must deal with their BITs in force. The author deems this Regulation to be a workable instrument. So far the Commission has already allowed many states to commence negotiations of new BITs that were not deemed to be a serious obstacle to any treaty negotiations in the pipeline on EU level.
Even trickier is the relationship between EU and other public international law obligations in the context of the intra-EU BITs, dealt with in Chapter 5. A brief historical sketch provides the introduction to the distinction between BITs entered into while a State was already an EU member and BITs entered into before accession, as is the case for many Central and Eastern European Member States. While the Commission is of the opinion that intra-EU BITs should be rescinded, the author compares the protection offered by virtually all European BITs and concludes that these can be a useful complement to the investment protection offered in the EU legal order. Not only because of procedural advantages, such as access to arbitration, but also when it comes to substantive protection standards, for example the quantum of compensation and the protection of legitimate expectations. Moreover, even in those instances where investment treaties do conflict with EU law, the author emphasises that this does not directly affect their validity as such, as was argued by certain Member States in the initial stages of the Eastern Sugar (27 March 2007) and Eureko/Achmea (26 October 2010) arbitrations. The author consequently remarks that while the EU is actively engaged in the external dimension of its investment policy by negotiating (trade and) investment treaties, the legal integration within the Single Market lags behind. In his concluding remarks, the author sees an increasing legal integration in the field of FDI, also within the Single Market, provided that the EU institutions and the (presently on this topic disagreeing) Member States can find common ground for a comprehensive FDI framework.
This monograph is not the only work that has appeared on the regulation of investment under EU law, but despite the intricate interplay between abovementioned instruments and legal orders, the author succeeds in lucidly identifying and explaining the different questions thanks to a very helpful structure. This study is highly topical, which has as a disadvantage that its subject is a particularly fast moving target and thus makes it hard to keep up-to-date with the most recent developments and the EU’s investment agreement negotiation practice and the public debate that has flared up about investor-State dispute settlement. In any event, this book will remain a most useful analysis of the fundamentals in this debate.